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Navra American Fund

Discussion in 'Managed Funds & Index Funds' started by Jayar, 6th Nov, 2007.

  1. Jayar

    Jayar Well-Known Member

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    Hi,
    Looking at this fund and it's performance chart this F/Y, can anyone give me some advice as to why it is pointing south so much?
    Is it the sub-prime problems, or the AUD, or what?
    What's the outlook for the future here?
    Interested to hear from all those more learned than me.:cool: And that's most of you.:D
    Thanks in advance
    Jayar
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Sub-prime keeping the DJIA weak and the strong AUD.

    Have a look at the attached charts ... DJIA has basically done nothing for 3 months while the AUD is up strongly in the same period. That's pretty much why any investment with large US or USD exposure has shown poor performance recently.

    In the short term I wouldn't expect that to change - weakening economy in the US and strengthening AUD will keep supressing returns.

    Medium to long term, once the US economy picks up again ... things will look a lot better ... especially if the USD manages to claw back some ground from the AUD in the process.
     

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  3. coopranos

    coopranos Well-Known Member

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    Are there any figures available for the performance of the fund if foreign currency changes werent an issue?
    The claim was always that Navra was underperforming in Australia because of a prolonged bull market, surely the US is exactly the sort of conditions Navra would be looking to perform strongly in?
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Look at the distribution for the last quarter: 2.55% versus 2.5% for the Australian funds ... I know 1st quarter distributions for the financial year is a bit arbitrary - but they have to have made the profit to be able to distribute it!

    Will be very interesting to see if they can continue to distribute that much each quarter ... I'd be very impressed with a 10% distribution for the full financial year.
     
  5. coopranos

    coopranos Well-Known Member

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    Yet the website shows a return to date of -5.74%.
    Also they dont have to have a profit to make a distribution at all, they only have to have a taxable income. If you buy a share for $10, it has a $1 dividend, and the share price drops to $4, you still have a taxable income (which would have to be distributed in a trust), but you have lost 50% of your capital.
    I guess this goes back to the old debate - what value is a trading profit when you are losing your capital?
    If you all want to send me $100 I will be more than happy to send each of you $3 per quarter as a distribution. This is a whopping 12% per year income. At the end of the year I will be happy to give you $50 back as well.
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Kind of missing the point of an income fund aren't you ? You buy it for the income stream, not for getting your capital back at the end of the year. Yes, eroding capital is never ideal ... but such are the risks of international investments with a strongly rising currency. One would expect (hope?) that in 10+ years time, the capital is all there and then some.

    You'll probably find that in USD terms, the fund hasn't lost much (if any) capital. Our problem is that we are buying with AUD ... which makes it a less than ideal situation.

    Who would have thought three of four years ago that parity is a real possibility!

    FWIW though, I don't have any money in the US fund, nor do I intend to put any in there until I see evidence of sustained strong performance.
     
  7. coopranos

    coopranos Well-Known Member

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    I understand that is the line Mr Navra runs (forget the unit price, just look at the income).
    That doesnt mean your money wouldnt be better earning 6% a year in the bank! (maybe more after tomorrow!)
     
  8. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Only if you take a short term view.

    Assuming at some point the US market recovers and/or the AUD drops or at stops rising (neither are guaranteed, but both are quite possible) ... then the capital will return again (a 20% drop in the AUD will see quite impressive gains from the fund!).

    In the meantime, you've been earning your 10% income (again, assuming it actually does earn 10%).

    If I invest $X now and receive 10% income from that investment and then in 10, 20, 30, etc years time only get my $X of capital back with no capital gains ... I'm still well ahead of someone who just leaves their money in a bank account earning 6% or so.

    Naturally if interest rates hit 10%+, the fund needs to be generating more income to still be ahead - but that's an arbitrary argument.

    I'm not trying to sell the Navra US fund - like I said, I won't invest in it right now. I'm just trying to point out the short term vs long term view of the investment based on the reason you would be invested in it.

    You don't invest in an income fund like this with a short term view. If you needed your capital back within 12 months, I would always recommend putting you money in the bank to earn your 6% or so.

    If we were talking about a growth fund with relatively little in the way of income distribution, then capital erosion is very bad. But for a fund where capital growth is usually expected to be minimal, and income forms the bulk of your return, then short term capital erosion (especially as a result of currency movements - which are largely independent of the market), is not nearly as bad.

    To go back to your earlier point, let's look at the actual figures.

    Let's say we invested $10,000 at inception (1st March 2006). Today the capital value of that investment would be around $9020. Let's also assume that we did NOT reinvest distributions. We would have received a total of $950 distribution so far, making our total return $9970 (a drop of 0.3% from when we first invested).

    Now, on the 1st March 2006, the Dow was at around 11,000 and now it is at 13543 ... an increase of 23.1%

    At the same time, the AUD was at around 74c, and now it is at 92c, an increase of 24.3%

    So the net impact of the rising market and the negative impact of rising currency is around -1.2% ... so given our portfolio has only dropped in value by 0.3%, we're actually doing slightly better than we may have expected. Not that this is anything to get terribly excited about - but still, it shows the fund is mostly doing the right thing.

    If the AUD was to drop back to 80c (which would still have been considered high before the beginning of this year) ... and the Dow was to remain completely flat during that fall - your capital would automatically increase in value by around 13% ... making the numbers look quite a bit better.

    Naturally this might lead us to a discussion of currency hedging ... and whether the fund may have been better off deciding to hedge. I don't really have an opinion about that, other than I tend to be of the belief that hedging is simply one more variable that you can get wrong just as easily as you get it right.

    None of this changes the fact that you'd still be worse off in total return terms today having invested in the fund at inception and holding until now (which is what you've been saying) ... especially given the opportunity cost of not investing in the strongly rising Australian market.

    However, it is not our place to tell people that their 10 year+ buy-and-hold strategy can't or won't ever show good returns a mere 18 months in!! If that were the case, nobody would ever buy property :rolleyes: