Managed Funds Navra fund outperformance of the S&P200 - #2

Size matters ?

Hi Sim

We agree on one thing - "that's not excusing the situation"

I hope Steve and the team at NI will read and respond to the issues raised, and formulate a strategy to ensure this situation doesn't arise again

If indeed other senior people at NI aren't comfortable communicating online, then so be it ... let the communication with shareholders and unitholders be by #^*%(*$ carrier pigeon if necessary, as long as the communication happens. I don't want to know when someone has a stomach upset, but I DO want the formal minutes and results of the AGM, the detail or commentary about the lack of uptake of the recent share offer, the impacts of that on marketing the fund, the likely future of the US funds etc.

I've got a stake in making NI successful, and this lack of clarity is becoming like a noose around its neck as far as I'm concerned. I'm starting to see more people outside of NI jump in to its defence in the absence of any comment from NI itself.

Cheers
Carl

 

Name another Managed Fund that responds to investors on an internet forum. Its fairly unique I would have thought? Are we expecting too much?

MJK

 

Expectations

From my point of view I don't expect anything from NI on InvestEd ... as I understand it InvestEd and NI are not related. I just want some info provided about key strategic issues in whatever medium is deemed suitable by NI. It seems that InvestEd has become the vehicle by which information will (or will not) be circulated ?

On InvestEd, Steve has committed to provide info such as :
http://www.invested.com.au/forums/showthread.php?t=486
http://www.invested.com.au/forums/showthread.php?t=448

and interested parties have taken responsibility to post info passed on from Steve :
http://www.invested.com.au/forums/showthread.php?t=531

I won't keep harping on this as I am appearing to be a detractor when in fact I am invested heavily in my belief in Steve and NI. I just think some clarity would be in the interests of all concerned - specifically AGM minutes, share offer results and its effect on NI future, USA fund. Surely not too much to ask as there appear to be plenty of unofficial snippets of info about all these issues ?

Happy Australia Day
Carl

 

I have spoken to both Steve and Bill on this issue and have been told that NI is very well aware of this issue and it is be rectified.

Mark

 

** bump **

For Steve to lend some insight to now that he's back on deck. Better to keep it in this original thread than link to the "Steve's back" thread.

Q1: Is this underperformance locked in?

Q2: Is this likely to continue in the current "straight up" ASX market we're enjoying?

Cheers,
Michael.

 

BSL comeback?

Looks like BSL is going to make a decent come back today (up 4 1/2% so far today). This has been a real underperforming stock in the Navra Blue Chip Fund's portfolio, so hopefully a good day today will have us back on track.

Now if only TOL could bounce back as well...

Regards,
Mark Leo.

 

TOL = As long as gap is not filled around $ 12.60 - forget about it.
BSL = Until gap is not filled around $8.07 - forget about it.
Until than .... stay

 

Gap filled

Tropo,
Can you explain what is ment by the gap being filled or not filled? I'm assuming technical trading term...
Thanks,
Mark Leo.

 

Good......good.....good.....

Yes.......I just started to have a look at some of the stocks in the portfolio that could do with a dose of 'recovery' and certainly those two stand out.

Presumably it shouldn't matter what price BSL closed at, if it was up 4.5% during the day, I would imagine there were at least a couple of selling opportunities during the day.

I think Steve previously mentioned on the Forum(please correct me if wrong) that on the way up, there can be times where stocks will be sold at a loss, times when they may be sold at minimal profit and then something like 'the last third' when really good profits are made. I'm sure this is a very rough guide and is just meant to be indicative so excuse my 'rough' summary. However, without going into detail, and more from a philosophical point of view rather than system detailed, is there a reason Steve why you would ever sell at a loss? Neutral? Yes. Profit? Yes. But why at a loss IF it is still a stock you believe should still remain in the portfolio.

Here's to a good rise for TOl in the coming months too!

 

O.K....... Nothing complicated really ...

Open BSL daily graph and you will see that on November the 3-rd BSL closed at $ 8.69.
The next day (04-November) BSL opened at $ 7.25.
The difference between the two (close / open) represents gap of $1.44 - which is a bearish sign.
To fill this gap BSL should rise above $ 8.70.
If this happens this may be beginning of the nice run up OR BSL may bounce back.

Do not worry.... Those two stocks are not going to affect the whole portfolio IF traded around actual levels (up and down).

 

I do know that the NavraInvest funds bought a lot of BSL that morning , when it dropped around the $7.25 mark. So they will now be starting to look good on that one - esp when its gone up 61c in the last 2 days of trading to be (now) $7.90.

 

Perky,

If approx. half of the gap is filled on the reasonable volume today ( can not check now because I do not have live charts ) say 13-20 mil, than this is a very promising sign, but still it's too early to make a call. Anything can happen.

 

Hi Michael,

No question is hard!!

Some things to consider first up:

1) Why is everyone so stuck on the performance against the index??

The performance of the fund compared to the S&P 200 index is purely a measurement to calculate what fee we will earn. I specifically chose the S&P 200 index so that I could measure against a broad spectrum of shares in the market.

Would you prefer it if I measured our performance against the Top 20 index?? The point is that 90% of the shares we trade are Top 20 Blue chips. This is done to make the portfolio as safe as possible. The S&P 200 has creamed the Top 20 . . . when the market is this HOT small and medium caps do FAR better than blue chip shares!!

2) It is all about risk profile.

My clients are very much 'Mum and Dad' investors (like myself) who are using equity out of their PPOR to fund the purchase of IP's and shares. The profile of the fund is designed to be of the lowest risk. (IE Blue Chip Shares only) so as to protect the investors in good times and BAD times. Yes there are many 'higher risk' portfolios that one can invest in (Small caps for example) that have outperformed the S&P 200 at the moment. Please note that the market is at an all time high at tonights close. In fact, the market has been trending up and towards record closes since the day we started the fund!!

The question of performance against the S&P 200 and measuring what you believe should have been your result is not relevant against a 'peaked' market condition.

3) Actual value return.
You see yourself as -$23,054 . . . glass half empty.
What about $30,184 ahead (forget the index and performance fee for a sec) . . . glass half full.

Approx 8% has been paid out in income distribution for the half year (Locked in). . . this shouild not be ignored.

4) The "ASX200 performance over period: 9.52%" is a paper gain ONLY.

An example of this is if the market declines by 10% tomorrow . . . then you will be -0.48% for the year. Yes also only a paper loss, but all your 'perceived gains' will have come to nothing. Likewise if the market did decline 10% tomorrow, then the fund also could decline by this amount. (although the very strong Blue chips are least affected in such declines) This would ALSO be just a paper loss . . . BUT THE IMPORTANT POINT IS that the distribution is not lost! So even though you might be at an actual value loss of -0.48% or slightly more . . . you would have received the 8% income in cash which might be safley locked away in an offset / LOC . . . OR you would have EXTRA units.

Hope this answers the question

regards,

Steve

 

US fund starts within a few weeks!!

Will keep you informed . . .

Regards,

Steve

 

Steve

Question please following on from Michael's queries and also "growth" percentage of the fund.

Surely "growth" is only relative to an individual unitholder's position. By this I mean take the example of someone buying in such as Michael was trying to do before the September distribution at say $1.18 per unit (I believe Michael missed the boat and got in after the distribution which turned out to be better for him because his investment is actually showing "growth").

The distribution was 5.7c. Unit price goes back to $1.11/$1.12 then falls back to $1.07 or thereabouts. Therefore you have received your distribution (on which you pay tax on the profit after deducting your LOC repayments and your margin loan repayments), your unit price has fallen back twice the amount of the distribution. Therefore for this unit holder you are sitting on a sizeable loss (unrealised) even if the fund overall is showing a "theoretical" growth.

As we are all individual unitholders buying in at different price points I think the growth component is meaningless if it cannot be quantified back into dollar and cents to be realised by that individual unitholder at a specified point in time!

To date with an 8% distribution, depending on what price point you purchased units, most of this has gone into debt servicing the LOC against PPOR and margin loan so very little is left over for reinvestment or living expenses. Added to this was the pullback in the market in October. If you had purchased additional units immediately after the distribution you would have been buying them at $1.12 only to see a further 5c. erosion (I know - market fluctuations). Only now would you be getting back to the after Sept distribution price, but still well behind the original $1.18 buying price. Therefore to get back to level pegging the unit price has to increase to the $1.16/1.18 market to be where you were 4 months ago. Yes, you have had your distribution, but for the unitholder in this example (I am not using myself as an example) there is no "growth" showing yet in their investment, they are still showing a negative value in their portfolio but carrying debt servicing costs based on their original entry level.

Most of the blue chips have paid their dividends, prices went back the div. amount and maybe slightly more, but most of them have well and truly put back on the dividend amount plus quite a bit more. This increase in the underlying value of the blue chips does not seem to be very well reflected in the performance of the unit price! Maybe because the fund is in and out all the time it does not capture the full benefit of a single stock moving up 10% or so.

Outperformance/underperformance of the index is only of secondary interest to me inasmuch as it is an accepted industry benchmarking standard to measure performance and it is useful to any investor to research a vehicle before making their investment decisions. The way the performance fee is currently calculated is fine.

How can you quantify "growth" for an individual unitholder as illustrated above? I can only do it the way reflected so I can see how Michael is wrestling with his numbers! although he would be showing a gain on his original investment.

 

Redrover

Your example is something I wrestle with constantly. I have bought into the fund at various stages, the last being at just over 1.13 in Dec04 (this just happened to be the biggest investment including a margin loan ) so while the unit price is under that price , I am sitting on a paper loss and also my LVR goes up meaning more chance of a margin call. I often consider selling those units when the redemption price reaches my purchase price (so as not to incur a capital gain) and then sit back on wait for the price to fall and then buy back in. Obviously there are risks with this strategy eg. the price keeps going up after you sell, the time lag when selling units via a margin lender could see the price fall in the meantime, etc. The flip side is from my perspective , is to get some capital growth out of the fund. If you paid a high price to get into the fund, the last 12months plus has seen zero CG and I'm not sure if that will change.

Gazza

 

Steve,

Now THAT's why we've been waiting for you to come back to the forum!

OK, certainly helps clear up a few things for me. I might respond to each key point briefly in turn...

1) Why is everyone stuck on performance against the index?

I guess I had it in my mind that you aim to beat the index so I should expect this to occur. As you mentioned, if you don't then you don't earn a fee, which is clearly unsustainable. I still think its a realistic expectation of unit holders that their holding's performance will beat the benchmark. But I understand better now why it is less likely to in these conditions.

Just checked performance of the ASX20 (XTL) and its gone from 2350 on the 14/10/05 to about 2700 today. That's a 14.9% return over that period.

The ASX200 (XJO) has gone from 4410 to about 4960 today. That's 12.5% growth over that period.

And the ASX50 (XFL) has gone from 4300 to about 4880 today. That's a 13.5% return over that period.

So, if my math is correct, the ASX20 has beaten the ASX200 over that period. Am I missing something? Whichever index I pick I get stellar performance relative my NavTrade units which are still languishing at 7.0% performance over that period. In fact, NavTrade's preference for the ASX20 means it should be creaming the ASX200 and their performance should be double what they've realised!

If I could venture a theory?...

I reckon the ASX20 has recorded such high growth on the back of RIO and BHP. We're clearly experiencing a huge resources led boom. I read in my quarterly report that NavTrade has sold down its holdings in BHP. I think this is a mistake. If you're going to REACT to what the market does then you need to do so in an informed manner. If the resources indicator is trending upwards then you need to find the slope of that curve and apply this to your buy/sell criteria in DCT. i.e. Hold them for longer and buy on any downside. You can't assume a flat line (zero growth) as that's not the market we're in. I know that's proprietary information but you need to be overweight in resources at the moment and be "reacting" to the trend of that sector.

2) It is all about risk profile.

Spot on. I'd much rather "settle" for a 15%-20% return in a growth period knowing my exposure to a major correction is somewhat mitigated. I'm one of those mum and pop investors too who's trying to use my NavTrade holdings in a long term set and forget capacity with reduced downside risk. Great answer, thanks!

3) Actual value return.

I am a glass-half-full kinda guy. In fact, that's exactly the point I made over on Somersoft when pitching in how good the fund is. I explained that, sure its under-performed the ASX200, but NOT investing in it would have cost me $30K in opportunity cost less interest expenses... I certainly get this point and still am very happy with the fund and what its delivered me in the last quarter.

4) ASX200 paper gain only.

Sure, but you can realise that gain by selling out anytime you want. If the market tanks then all funds are exposed to the correction regardless of their trading methodology. NavTrade is a little less exposed due to its heavy weighting in the ASX20 and its trading methodology.

Thanks Steve. OK, to summarise my thinking then:

NavTrade retail is returning me a profit above my interest costs so I'm ahead. I could leverage into a leveraged resource fund and ride the rollercoaster but that involves a LOT more risk for the potential of a LOT more return, something I'm not that comfortable with now the ASX is in record territory daily. My fund is somewhat less exposed to a market correction which is a good thing, so I can set and forget and take performance somwhere approaching the long term mean of the ASX200 plus a little bit due to DCT. Just don't expect this EVERY quarter!

Good, now I can get back to sourcing that IP. There's a couple of open houses that I'm interested in this weekend, and these could make me some serious money thanks to the power of leverage that I can employ!

Cheers,
Michael.

 

Steve has indicated on another thread that he is swamped and I think it is in all our interests to give him some time to lead NavraInvest and post the odd strategic pearl of wisdom as his time permits ;-)

Maybe it would help for forum members to debate some questions till we can't get any further ?

From my point of view I don't have a margin loan (doesn't suit my current Risk Profile).

So I'm pretty happy with the returns for a fund that is quite * conservative *. Maybe your needs are different, but with a margin loan presumably your Financial Planner would have outlined the risks of performance / costs when a fund isn't performing at its peak ?

But even on the worst possible return (last quarter) how can this not fund the interest expenses on the LOC and margin loan ? Granted you're not going to buy a Ferrari with the proceeds, but its a 5 year recommended investment timeframe. Have you been in the fund 5 years yet ?

Not sure of your reasons, but I know why I'm not invested direct in the blue chips you've mentioned ... much harder to manage, not as liquid, greater risk of loss of capital (with my limited expertise).

My understanding is NI is an income fund, not a growth fund. Capital Gain is a nice side benefit sometimes, but is in no way guaranteed. I think if an investor was pre-occupied with capital growth there would be more suitable (likely less income-generating) funds out there ?

Cheers
Carl

 

Tryhard

Quite correct - it is an income fund but I think you will find Steve does allow for some CG over time, in fact some of his living off equity examples I have seen , show up to 5% CG pa. From my perspective, I am definitely investing for the income and am very happy with that income, in fact it more than paid for the holding costs of 3 very negatively geared properties over the last year (and had some over for spare cash ) . So I couldn't be happier with my structure but it's always worth examining to see whether it can be improved.

Gazza