Managed Funds Navra fund outperformance of the S&P200??

In a previous thread entitled Fund Volatility, Steve made the following comments:
quote

At the start of the month we were in excess of 3% above the S&P 200 and now -7% later we are 2% above the index. (But we are holding about 5.6% of potential outperformance.)

What does this mean??
Similarly to what happened in March:
Until the market recovers to its previous position the potemtial gain will remain just a potential. (Unrealised)

With each increase back up we will gain the extra margin from each value (cheap) purchase we have made. By current norms, when the market again reaches its previous high we should be approx 5.60% above the S&P 200.

end quote

As of today the S&P200 is about 40 points off it's previous high so when I check the Navra fund's performance as of 16/11, I am a little perplexed to see the performance fee at only 0.22% which to me indicates an outperformance of the S&P200 of only around 0.6%.

This is a long way off the 5.6% indicated by Steve. Is my understanding wrong or what is the explanation as to why the fund hasn't outperformed the index by at least 5% (thereby earning a performance fee of around 1.75%)?

 

Hi Gazza.

To be honest I haven't had a real good look at the charts over the last few months or followed what has been happening with individual shares within the Portfolio, so any observation I make is really only from a 'that surprises me too' point of view...........

Having said that, I would have thought the Fund would have had a larger Performance Fee by now?

The aim is to achieve 5-10% above and this is really helped by a volatile market. Surely we have had some good volatility and recovery this financial year so far?

I'm not complaining about the Distributions however I would have thought the Performance Fee for the Company might have been higher by now?

Happy to be educated on this point though as that is surely one of the reasons we're here........

 

Alan

Exactly my thinking. I am extremely happy with the income the fund is producing but as a shareholder in the company I have a big interest in seeing the company prosper. Basically it has to start making money and currently the only way it can do it , is to outperform the market by a substantial margin. Up until now we have heard that market conditions have not suited the fund ie the share market has been going straight up and that the fund will come into it's own with a lot of volatility. From my perspective, the last month or so has been pretty volatile and I expect to see the fund really outperform the index. To me that doesn't appear to have happended and I am interested to know why (and I am happy to be told it's because i don't quite understand how it all works).

gazza

 

Gazza,

Awesome question! I've been pondering the same thing myself. Let me shed some light on actual performance over my first month in the fund. I'm really happy with the performance, but its certainly not "outperforming the index".

Here goes:

14/10/05: I bought in at $1.0723 and the ASX200 was at 4410
17/11/05: InvestorServe is showing the shares at $1.1066 and the ASX200 is at 4636

So over a 34 day period the fund has gone up 3.20% and the ASX200 has gone up 5.12%.

Don't get me wrong, 3.2% in a month is great and works out to be 38% annualised which more than covers my full financing costs, but the index annualised would be 61%. (Not that this will occur though since mid-Oct to now has been a strong rally on the ASX). Nonetheless, the difference between the fund's performance and the indexes performance over the last 34 days has cost me personally over $10,000 in underperformance relative the index. That is, if I'd bought the index I'd be $10,000 better off.

Would just like to know whether this underperformance is locked in or whether in fact there is all this potential upside relative the index that is yet to be realised. Would be great to know that I can yet expect to outperform the index.

Cheers,
Michael.

 

Exactly my thinking. I am extremely happy with the income the fund is producing but as a shareholder in the company I have a big interest in seeing the company prosper. Basically it has to start making money and currently the only way it can do it , is to outperform the market by a substantial margin. Up until now we have heard that market conditions have not suited the fund ie the share market has been going straight up and that the fund will come into it's own with a lot of volatility. From my perspective, the last month or so has been pretty volatile and I expect to see the fund really outperform the index. To me that doesn't appear to have happended and I am interested to know why (and I am happy to be told it's because i don't quite understand how it all works).

gazza

Gazza,

Below is my 20 cents …

1) Do not think even for a moment that this or any other Fund can outperform market day in/day out.
2) The Market is/was not that volatile as you might think.
3) Not every stock in portfolio is moving in the same direction. Some are moving down, some sideways and some are shooting up. What you are getting is an average of the whole portfolio.
Also - I guess that Fund system in not set to trade the Market moving straight up.
4) So far, nobody invented perfect trading system ( and nobody will !!! ) – which work 100% in different Market conditions.
Personally I do not have any problem with the company prosper in the future.
And ... guess what…….I sleep like a baby ( 8h/day on average ).

Keep $miling.

 

Tropo, +HIGH FIVE+

Great post.

Just curious to know - why do people follow the fund day in, day out?

Mark

 

probably because they can.

 

Tropo

All your points are valid but we are not talking about other managed funds here. Steve made a comment about what the funds outperformance could be if the market returned to it's previous highs. Given we are close to that point and there is a big difference between that percentage and the actual percentage, I think it's a reasonable question to ask , why the big variance mainly so so I get better understanding of how the fund operates.

cheers
Gazza

 

Gazza,

From memory - someone correct me if I'm wrong here - Steve said the outperformance would happen when the fund got back to where it was. So far, there's still a ways to go.

Mark

 

Mark,

I'm not sure if my post gave this impression? It wasn't meant to......

I was looking at the Performance Fee for the YTD which is for almost 5 months now and trying to get a feel for the situation.

Last Financial Year for the Retail Fund a Performance Fee of 0.75% was achieved in what was perceived to be 'non ideal' conditions. To 16/11/05, this Financial Year, after 5 months, the Performance Fee achieved is 0.19% in what appears to be on the surface more volatile conditions that should suit the Fund. I guess some are simply trying to understand how this occurs.

 

" Tropo

All your points are valid but we are not talking about other managed funds here. Steve made a comment about what the funds outperformance could be if the market returned to it's previous highs. Given we are close to that point and there is a big difference between that percentage and the actual percentage, I think it's a reasonable question to ask , why the big variance mainly so so I get better understanding of how the fund operates.

cheers
Gazza "

I do not recollect what Steve said - so I can not comment on this.
But if you are trying to better understand how the Fund operates, you should ask people who run this Fund.
Still ..... Keep $miling.

 

Mark

The S&P200 dropped over 5%, it is now back to within 40 points of it's highs (just under 1%), so yes while there is still a bit to go, I would have thought a 4% recovery would have resulted in a bigger outperformance than has been achieved , that's really what I'm querying. I am happy to stand corrected on this and see the fund make up 4% in outperformance (if the index picks up those 40 or so points).

Gazza

 

Gazza,

I was thinking about this, and maybe Steve's algorithm has some sort of "bias" setting in it. i.e. When the market is steadily falling it puts a buy bias in and when the market is steadily rising it puts a sell bias in. To that end, whilst the market has been steadily rising now back to its original level, maybe the bias is still set to buy on the back of the 5% drop. So, the fund is holding all the stock and sub-optimally trading due to the bias. If it tips over the previous high then the bias reverts to sell and all the profit of those cheap buys is released.

That's the sort of response I'm hoping for from Steve. Hence my question about whether we can yet expect to outperform the index when the ASX200 gets back to its previous level. 40 points down, is still down and a computer might be acting on that knowledge.

Cheers,
Michael.

 

" When the market is steadily falling it puts a buy bias in and when the market is steadily rising it puts a sell bias in ".

Michael,
Correct. That's how Steve's system is working ( basically speaking ).
In jargon language this kind of " approach " is known as " fading " the Market.
Keep on $miling...

 

Michael

Yes that is exactly my understanding of how the system trades and yes I too am hoping for a response from Steve along the lines of 'we have 5% unrealised profits which will be realised as the market rises past it's previous highs triggering the sell orders thus locking in the profits'.

Gazza

 

Guys,

Fingers crossed, I'm hoping that's what will happen, but Steve seems to be mysteriously absent from the forum of late. He's either taking a well earned break after his share float, or is sitting on the sidelines readying that killer post on the stellar fund performance when the XJO tops 4670! Well, its up another 25 points today to 4655. Another 15 points and we'll have blown past that previous high. I do expect some resistance though so may not be until some time next week or even beyond...

Cheers,
Michael.

 

Navra Fund performance explanation

Hi all

This is great thread with good questions on the performance of the Navra fund. Gazza you are on the right track, I understand the fund has traded well over the past few weeks and its a case of the Navra chosen stocks doing what Steve believes is inevitable.

Of course it is best for Steve himself to explain. He is currently wrapping up a country trip and asked me to pass on the message that he will respond to the questions over the weekend.

cheers
Mark

 

Thanks Mark, I had sent an email to Steve a few days ago and hadn't had a reply which was strange as it was more about rugby than anything else

Also I started this thread to get an answer to a question, I wasn't having a go at anyone or the fund itself. I am an unabashed fan of Steve's optimised investment structure and have implemented all the components (very aggressively , as Steve knows I am very impatient . He will also tell you that I do like knowing the detail and will ask the difficult questions (repeatedly sometimes until i get a satisfactory answer)

 

Thanks for the feedback Mark.

 

Resistance? What resistance!?

Closed at 4671.

Hold on for the ride boys, its all one way at the moment. And with that in mind, it might mean that Steve's formula doesn't turn that "sell" bias trigger until it looks like finding a ceiling. Ah well, "the man" will enlighten us over the weekend.

Can't wait
Michael.