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Navra fund and future distributions when unit price continues to rise

Discussion in 'Managed Funds & Index Funds' started by perky, 15th Sep, 2005.

  1. perky

    perky Well-Known Member

    Joined:
    15th Aug, 2005
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    300
    Location:
    Sydney
    Hi Guys,
    This is a question that I have come back to time and again - mainly because I cannot get the grasp of it :confused:
    It is in regard to distributions - and how they will work out in the future while the unit price has capital growth.
    Here is an example:
    The last distribution was 3.5585 or 3.88% . I think at the time the unit price was 1.09 or close to that.
    At the moment, the wholesale unit unit price is 1.1594.

    So lets say this:
    Lets assume this quarter stays as is, and we get a record distribution as Steve advised in a different post .
    Lets say possible distribution of 5 cents per share - which would equate to 5.79% distribution.
    Assuming this was 30th September today (a little ahead of myself here)

    1/ Will that 5.79% eat into where Navra Wholesale is at the moment - i.e currently 7.4% - leaving 7.4 minus 5.79 equals 1.61% capital growth left behind?
    2/If that is the case, how will future distributions work - lets say in 5 years time when the unit price is maybe 1.30 ? Does that mean for a 5 cent distribution we will need a corresponding 6.5% distribution ? That would appear a difficult task.


    Am I missing something here ? :confused:
     
  2. perky

    perky Well-Known Member

    Joined:
    15th Aug, 2005
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    Location:
    Sydney
    *Bump*
    Any takers.
    I think my calculations to do with the unit price/distribution may be wrong - I know this is how it is calculated :
    "Net income is distributed quarterly based on the number of units the investor holds in proportion to the number of units held by all unit holders, at the distribution date. Distributions are not pro-rated for investors who were not unit holders for the whole quarter."
    So last quarter we had 3.5585 cents per unit 3.88% distribution - I think the unit price was 1.09 at the time.
    Can someone please give me a working example of the above quote?
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    9th Jun, 2005
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    Location:
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    Actually perky - the missing part of the equation in your initial analysis is the fact that the unit price goes up as a result of the value of the fund increasing.

    unit price = fund value / number of units

    distribution = (profit / number of units) * 100 ... this gives you your cents per share figure

    distribution % = profit / fund value

    ... you'll find that the distribution amount (cents per unit) is directly proportional to the percentage distribution ... so a 5c per unit distribution will always require the same percentage of profit (whatever that may be). What has to change is the actual amount of the profit as the value of the fund increases.

    For example, with a $10m fund with 850K units issued, showing a $400K profit, the distribution is 4%, or 4.71c per unit.

    ... and with a $100m fund that has 8.5m units issued, showing a $4m profit, the distribution is ........ 4% or 4.71c per unit !!!! See ? exactly the same.

    The trick is that the profit has to increase linearly with fund size ... 10 times the fund size, you need 10 times the profit to provide the same return per unit.