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

Steve has said that his system is reactive not predictive so I wouldn't expect that.

 

Just off record high...

Guys,

The ASX200 is less than a point off the record high now. Happy days.

Rally in resource stocks on the back of metal price increases. BHP and Rio Tinto faired well. Full article with reference to specific stocks here:

http://www.forbes.com/markets/feeds/afx/2005/11/18/afx2345086.html

Cheers,
Michael.

 

So we are back at the record high of the SP200, the performance fee earned by the fund as of COB on 18/11 was 0.19% which to me equates to an outperformance of the index of 0.54%. The index has done nothing in the last 6 weeks or so but that fund would have bought on the way down and either sold on the way back up or is sitting on quite big unrealised profits but I see little evidence in the performance fee Steve, help me out here

 

Hi Everyone,

Okay I am back on planet Sydney . . . yes been around the country seeing clients / talks etc.

Now you are ALL taking too short a view

Principles:
The fund buys shares as the price decreases and sells as the price increases. (Yes many other factors are built into the algorithm . . . but for the sake of this discussion, lets keep it simple.)

March / April 2005
Market declined 9% . . . I received many calls from worried investors!
I suggested that we had been purchasing shares all the way down and thus were accruing value by lowering the average cost of the shares we were holding. Then as the market increased we slowly started selling and realising profits . . . resulting in a 5%+ distribution at the end of the Sept quarter.

PLEASE NOTE:
1) The realised profit situation does NOT occur immediately as the system does not immediately sell out of it holdings merely to produce short term profits!!
2) Individual shares can and do react differently when compared to the S&P 200 index.

October / November 2005
Market declined approx 7% . . .
Prior to this latest decline we were at approximately 38% cash.
We continued to buy value as the share prices declined all the way down to cash holdings of approximately 6%.

The market has turned this last week or two and we have started to realise profits, but have sold out very little so far. The current cash position as at tonights close is 13.94%.

Purchased 32% and have now sold out 7.94% . . . so very little impact for profit and fee accrual YET.

Gazza is probably most accurate by suggesting that we are holding much value.

Most of the gains are made in the last third of the sales, when the realised prices are greatest. (You would be very upset if we sold out too early )

By comparing the realised profits and fee accrual with a point by point increase in the index is too simplistic, or more to the point would be ignoring the very basis of what allows the algorithm to maximise the returns . . . OVER TIME.

I sense a heap of questions about the actual workings of the algorithm . . . and the answer to that is NO!! (Intelectual property.)

I sense that some seem dissapointed that the fees accrued are not higher

a) We could raise the fees if you want us too
b) We could introduce a fixed fee . . . like other funds do

or

3) We continue to serve the interests of our investors and irrespective of the fees we have accrued, the return for investors (After locking away the distributions they have already received) is good

21-Nov-05
NIASRF 9.37%
ASX200 8.81%

The point I am making here is that our investors have received and locked away approx 5.50% this fin year so far and our performance is ahead of the index. These that reinvested their distribution have acquired MORE UNITS and the unit returns (Including the extra units) are above the market. Alternatively they are sitting on the extra cash or have paid down non deductible debt.

The FUM is $92 Million to date and I expect to exceed the $100 Million mark by the end of the quarter . . . meaning we are travelling well

Perhaps an InvestED workshop on this topic is an idea . . . let me know.

Regards,
Steve

 

Steve

Thanks for that, and good to hear from you again. A workshop sounds like a good idea so that we can all get a better understanding of how the fund operates. This will reduce confusion so that slow learners like me don't take comments like 'when the market again reaches its previous high we should be approx 5.60% above the S&P 200' to mean there will be that sort of outperformance on the very day the market gets back to its previous high

cheers
Gazza

 

Hi Steve.

I guess this is going to be one of those 'touchy' threads in that by asking certain types of questions it's hard for it not to be seen as criticism isn't it?

I for one am really pleased at the tone of these questions though as they do really appear to be asking questions to understand(as I am!) and I think that's a good thing.

Ok.......part of your post I'd like to mull over a bit more for now so let me just comment on the Performance Fee Section for now.

I guess there's the question to begin with of do you believe the Performance Fee is something that Unitholder's should even be concerned with? Shareholder's might but what about Unitholders?

My personal feeling with this one is it's certainly much more an issue simply because it is the main way the managing company makes it's money!

Those that charged a Fixed Fee have certain negatives but I guess they may(?) potentially have a more stable income stream. NavraInvest has taken the high ground and has decided to put its (shareholders)money where its mouth is and effectively stated unless they can generate sufficient Performance Fees they won't exist. So is Performance Fees an issue to Unitholders? I would say yes. Actually I think under your setup you do allow for the option of charging a fixed fee, but you have chosen not to at this stage? I may have that wrong....

Actually it is a lovely combinations of interests........everyone should want NavraInvest to have good Performance Fees!

I think it says on the NavraInvest Website somewhere that the goal is for an outperformance of the Index by 5-10% a year. Would you still expect on average for this to still be a achievable in at least 2 out of every 3 years without being predictive about certain years?

Thanks for the feedback Steve.

 

Steve,
InvestED workshop would be a good idea.
I for one would love to know more about the workings

 

Thanks for the update, very informative. Without breaching that IP, is it possible to more often publish cash holding information? For me it would help my understanding/curiosity of what the fund was up to this week. On the web-site next to YTD performance will do !!!

 

Hi MrDarcy,

Yes I think this should be okay . . . I will put it to the board, but I can see no reason why they would be sensitive about declaring the cash holdings on a daily basis.

The alternative might be for me to post the cash movement here on the forum on a daily basis (Now that I am again available to post ) At least this way I can offer some commentry on each days trading.

As per some of the more recent posts in this thread, it seems like an InvestEd workshop on the trading process is in order.

Regarding Alan's comments about the fee structure:
We have specifically chosen to charge the performance fee only. It fits in with my philosophy of what constitutes a moral basis to conduct business.
Of course earning a fee is important for the survival of a company! So Alan is correct that whilst trying to give unit holders the best available benefit, we also have to serve the shareholders interests.

Ultimately the balance will be about FUM:
The costs of running the company are stable; so the greater the FUM the easier it will be to cover these costs and then move into a profit situation.

Example: Fixed costs at approx $1.2 million per year.

FUM of $100 million at 1.2% fee = break even
FUM of $200 million at 1.2% fee = $1.2 million profit
FUM of $300 million at 1.2% fee = $2.4 million profit . . . and so on.

We should reach FUM of $100 million by year end . . . then the next goal is to double this over the next year or so. After achieving FUM of $300 million over the next 2 to 3 years (Goal) then the profit translates to dividends for the shareholders, which in turn via a process of conversion of P/E = the share price for listing the company.

This is all on track to fulfill the vision I projected to shareholders who purchased shares in the company through the various offers.

The alternative is to convert to a fixed fee like other funds charge at approximately 1.50% per year. (Which would be at the very low end of the fee scale) . . . in which case at the current FUM we are at a break even of costs to fee income. Likewise as the FUM grows so the company will move into an increasing profit situation, through to an ultimate listing.

Either way business operations are on a sound footing . . . we will at this stage continue with the performance fee approach, this being the moral basis upon which I wish to run the company.

My role and task in taking the company forward is to continue the trading process and continue to produce good levels of income on a quarterly basis.

My clients and other retail investors seem to appreciate this model and the income performance, hence the growth of funds under management.

The dream is to achieve the goal of $1Billion FUM . . . and until then we should all just enjoy the journey

Regards,
Steve

 

Thanks Steve. That covers most of my questions and explains it nicely.

I really like the idea of Performance based fees and I hope NavraInvest never have to convert to the fixed fee model philosophy as I agree it 'constitutes a moral basis to conduct business'.

Knowing how you like a challenge, I see from the above you will still have a few in the coming years.

The above example using an achieved 1.2% Performance Fee(over 3% outperformance) and trying to double FUM from $100m in the space of a year or so should keep you very busy. That is starting to become quite a large Fund with very good performance!

 

Steve or others,

OK bit of a dum question warning...

If you've bought stock when the ASX200 was at 4400 and held until 4600 then shouldn't that capital gain be reflected in the unit price? Or, do you report the value of the fund at the buy price (when at 4400) and only "realise" that gain when you sell the stock (at 4600 or above)?

I was just struggling to understand how there could be unrealised gains when you have such a low cash position. With it all in stock, I thought the capital gain of those companies would be reflected in the unit price.

Thanks in advance,
Michael.

 

Sim,

Yes, but it hasn't been keeping up with the index. And, as far as I can calculate, the only way the "unrealised gains" can be shielded from the current unit price is for the unit price to be reflective of purchase price and not current price. Otherwise the sale just transfers the equity from the specific stock to cash and locks in a profit on your Profit and Loss statement. Your Balance Sheet doesn't change as its just shifting from one asset to another.

Just trying to understand how buying at the bottom and waiting to sell results in some "unrealised gains". To my mind they're "realised" as capital gain and already reflected in the unit price. They may be "unrealised profit" from a P&L reporting perspective but that's not what people are asking about. We're all asking about the unit price and unrealised gains.

Cheers,
Michael.

 

Hi Michael,

I started to reply to your questions . . . then realised that I would need a publishing company to set it all out here

Okay so these are valid questions and I now definitely think we need an advanced DCT workshop.

I think this should be an exclusive InvestEd function . . . which I will host either in my boardroom, or at a hotel depending on the numbers.

In most cases these answers are best DEMONSTRATED . . . the written explanations including graphs, becomes a huge task.

Following this workshop which will hopefully encapsulate all the possible questions that the group can come up with . . . I will then start a series of articles on InvestEd covering the detail. (Question by question.)

Obviously the algorithm; unit price; buy/sell volumes/ realised profits /losses; unrealised profits /losses are all linked.

The answer to one question overlaps with others . . . so it will be best if I address the whole array simultaneously.

I would appreciate a response from everyone that:
a) Specifies a preferred date for this event.
b) Starts a list of questions

I look forward to an insightful event

Regards,
Steve

 

Steve,

Sounds great! And I apologise in advance for my strong technical bias. But you knew this already right! We all have our personal foibles.

In answer to your questions:

a) Preferred date: No real preference. Before Christmas would be nice so that I can understand movements in the unit price before the next distribution is calculated. I'm on leave from the 19th December so might be better able to make a business-hours meeting after that date.

b) i) An overview of the algorithm at a non-IP level. i.e. the fundamental indicators of a buy situation versus a sell situation. Do you use biases based on trend, how do you determine the "top" and the "bottom"? How much do you buy on the way down and how much at the bottom? Do you look at slope as well as trend in determining floors/ceilings or switching of bias?

ii) How is the unit price calculated? How can unrealised gains exist and not yet recognised in the unit price? What are the triggers for releasing these potential unrealised gains?

ii) Downside risk mitigation. How do you avoid "cliffs"? I know this is predictive, but do you look at any technical chart stuff to determine overheated stock? If a stock becomes overheated, i.e. PERs get blown out of the window, do you take this stock off your buy list and thereby limit your exposure to potential serious downward corrections?

That's just a couple of my current thoughts.

Its great to have you back posting again, and I hope you enjoyed your whirlwind trip.

Thanks Santa, I mean Steve...

Michael.

 

Steve,
Depends on how long you will take to answer
If for a few hours - then after work , say 7pm . Nov 28th too soon?
Or Wednesday 7th Dec, or Wed 14/Thu 15th.
Or if its going to be more than a few hours - then Sat 17th December ?

 

And a summary maybe ?

Hi Steve and all

If and when the event occurs, if someone would not mind doing a short precis, for those of us not able to attend, that would be much appreciated. If it was earth shattering I would make the trip and wear the wrath of the family left at home, but I'm comfortable things are in good hands, even if I may never properly grasp the technicalities like I should

In fact, Steve, if some of us out-of-towners were happy to throw in a few bucks, any chance of recording the presentation and producing a DVD ? This format might be something that could be sold online as part of the education process for the fund and NFS in general ...

Pretty cheap to do these days, and another medium on which we can all learn from you ? I've purchased a few of the Residex presentations on DVD, which aren't exactly "Tomb Raider" excitement levels, but a great way to set aside some quiet learning time at home

Cheers
Carl

 

Hi Carl

Now we don't want to discourage people from coming, and sharing a few ales whilst riding the DCT rollercoaster, but we're looking into the options about turning Steve into a recording star...we'll keep you posted

Cheers
N.

 

Hi Nigel

Understood Actually if you can package the DVD with a 6-pack of beer, you will probably sell a few more units

And maybe a lifesize poster along the lines of the attached - all the special edition Hollywood releases seem to include this sort of thing ;-)

Cheers
Carl

 

Saturday morning would be perfect for me however, for such event, I'll find the time any day and time of the week

Regards,
Artgul