Managed Funds Navra distribution

I'm very new to managed fund investing and have only recently begun investing in NI. Correct me if I'm wrong but I don't think the losses that Steve is referring to above were listed in the prospectus as a risk?

 

I think the theoretical problem some people would have is NI is widely known as an income fund, and some are heavily reliant on the quarterly distribution. Selling units to recover capital could be messy with capital loss etc I guess, depending on an investor's individual position ?

For my part, I'm happy, it all looks like good news to me compared to watching some direct investors I work with (razor blades anyone? ) ... but can see why some people would be confused how a change in strategy by a number of investors changes the capital/income split available to all unitholders ... if I read that right.

Still, could be a lot worse

Cheers
Carl

 

Yes, seems fair. I'll accept that. Thanks Sim also

MJK

 

I don't understand why this fund isn't performing really well with the volatility as this was where it was meant to shine. I was under the impression that it didn't matter whether the shares went up or down but it has mattered a lot. I'm not great with understanding the whole thing, so could someone explain that part to me please.

 

The thing that has to be remembered also is that a lot of people also invested by borrowing against their property so have to fund holding costs at about 8.5 - 9.25% (and rising! if new or not fixed) against a unit price going south, so for a lot of people the income this year will be lucky to be 1% net. Also one thing people have not mentioned is the fact that your asset base has obviously decreased whilst not a loss unless you sell, it will impact on your values if seeking finance as a lender will look at the current value and not what you purchased the units for which may impact on your debt servicing capability!

Also with the volatility over the last month the banks and larger caps have had daily trading ranges of +5% and -5%. That should have produced very profitable trading and I would have thought a return of more than 2% would have been easily achieved!!

 

Calrification

Ok, I appreciate how with underlying share prices going down then unit values go down, I also appreciate that it is more difficult to make trading profits in a falling as opposed to a rising market if the facility isn't available to short sell the market. However what I don't understand is how clients switching to warrants cause the fund to sell at a loss and therefore reduce what were apparently 'realised and locked in profits' of about 3%.

In sum my question is and I'm hoping someone can help me out here, what has an individual's choice of strategy i.e. switching from margin loans to instalment warrants got to do with the trading strategy of the fund? Therefore by extension, how can this change of strategy impact on the trading profitability of the fund.

Cheers

 

Im guessing it may do with the lack of cash... (or the amount they want to distribute)....

By people redeeming the units, Navra are having to pay the full amount of cash of the value of the unit. Then if there was say 1m to distribute and they paid out 333k to people for redemtion of units. There is now only 666k to distribute and is divided by the amount of units issued... However only guessing but seems the only logical idea..

 

Thanks for the input Dave, guess that is one possibility. However my underlying question remains and from what I can gather clients changing from margin loans to warrants has led to a chnage in approach and this I don't understand. Having said that I don't fully understand how the warrants work particularly the refinancing from margin loans.

Cheers

 

Like others, I'm also a bit confused as to how the (expected) quarterly distribution has gone from 3% to 2%.

I have chosen to stay with my margin loan, so from Steves' comment above ("Any investor can at anytime redeem the 1% of capital, should they for example wish to have a 3% cashflow for this quarter"), does that mean I will receive a 3% distribution, or does it mean that I would have to sell off some of my holdings to make up the 1% difference (should I want to achieve 3%)?

 

I thought moving to warrants didn't have to involve selling?

Of course selling and buying back may be a handy wash sale, but at the cocktail party it was stated that margined units or direct units just required some "paperwork" to move to warrants? Or is this not the case ?

 

Wondering about that also. Could it be that people are correcting to 55% lvr?

MJK

 

Nope, gotta sell and buy back in (hopefully price doesn't go against you in the timeframe)

 

This is a quote from an email enquiry to NFS few weeks back:

Moving to Warrants is a simple refinance process from your Margin Lender to ABN AMRO. The gearing ratio with warrants is 55%. If you current Margin Loan LVR is below 55%m, then it is a simple refinance.

If the LVR is above 55%, then there are 3 options:

1) purchase additional units
2) pay down some of the margin loan
3) rebalance by redeeming enough units to get the margin loan to 55% for refinance

Nothing about sell and buy (except to adj to 55%LVR), just "simple refinance", the same as mentioned at the cocktail party. Not that I mind really, I could do with a legit wash sale. Hmmm, and after distribution it will be an even better time !

But a 10%pa return (even though this the "expected" return) just doesn't cover the cost of money, warrants or no warrants, for the risk. I'd take 8% in a bank with no risk or loan if that's all that is on offer. And at a time of such great volatility.

 

I thought the warrants were only available to investors in the retail fund? If so, why should the wholesale fund also be affected by this?

 

Because investors in the wholesale fund that moved to warrants sold out and bought into the retail fund. That meant the wholesale fund will have incurred realised losses in the process.