Managed Funds Navra fund performance

Discussion in 'Shares & Funds' started by coastal__, 16th Aug, 2006.

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  1. Mark Leo

    Mark Leo Well-Known Member

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    Performance update?

    Got any further updates for us Michael?
    Mark Leo.
     
    Mark Leo, 29th Aug, 2006
    #21
  2. MichaelW

    MichaelW Well-Known Member

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    Mark,

    No problem. Here's my latest performance comparison chart updated for the closing prices on Friday 1st September.

    I won't bother with my commentary, I think a picture tells a thousand words...

    Cheers,
    Michael.
     

    Attached Files:

    MichaelW, 4th Sep, 2006
    #22
  3. MichaelW

    MichaelW Well-Known Member

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    Tropo,

    She traded above 5130 today to close at 5129.2. Another strong day and hopefully we'll break that upside limit.

    I'm ready to see 5400 again...

    Cheers,
    Michaell
     
    MichaelW, 4th Sep, 2006
    #23
  4. Tropo

    Tropo Well-Known Member

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    Michael,

    Take one step at a time. Let's break 5140/50 first, and close preferably at or above 5150.
    Market is weak and anything can happen, even if XJO breaks above level.
    Yep....Would be nice to hit 5400 level again.:p
    Until than stay :cool:
     
    Tropo, 4th Sep, 2006
    #24
  5. Alan__

    Alan__ Well-Known Member

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    Thanks Michael.

    I'm not sure if it has been moved or not :confused: , but I thought in the Fund Performance Section of the Navrainvest Site they used to show what Performance Fee had been earned. This also gave some indication of what sort of 'outperformance' or otherwise was being achieved. Can't find it anymore though..........
     
    Alan__, 4th Sep, 2006
    #25
  6. Mark Leo

    Mark Leo Well-Known Member

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    Thanks Michael
     
    Mark Leo, 4th Sep, 2006
    #26
  7. Farrer

    Farrer New Member

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    What will be the Distribution?

    Okay I'm new and only posted once before. Would this be the right thread to see people's comments on the current performance of the retail fund? Are we likely to get positive by month end? :confused:
     
    Farrer, 27th Sep, 2006
    #27
  8. Simon Hampel

    Simon Hampel Founder Staff Member

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    I doubt we'll see a positive return by month end (never know though ... the ASX200 is up over 1.6% so far today ... so anything is possible). The markets are at about the same level they were at the start of the quarter - so nothing much has grown anywhere.

    However I do expect that we should see some distribution - although I think it will probably be quite modest.

    The fund should still perform in a sideways market - but it won't be the same stellar performance we've seen before now, until the market starts to rise again (then I think we should see some good performance once it is able to take good profits from the shares it bought cheaply during the down periods this quarter).
     
    Simon Hampel, 27th Sep, 2006
    #28
  9. MichaelW

    MichaelW Well-Known Member

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    Farrer,

    OK, some numbers for you based on yesterday's close to start with... :)

    * Navra opened the quarter at 1.1007 and were at 1.0754 yesterday representing a net loss for the quarter so far of -2.3% (-9.2% annualised).

    * The ASX200 opened the quarter at 5092.2 and was at 4989.6 yesterday representing a net loss for the quarter so far of -2.01% (-8.1% annualised).

    If I look at today's close for the ASX200 and prorate the close for Navra then we get the following:

    * Navra should close today at around 1.0977 (prorated) representing a net loss for the quarter so far of -0.27% (-1.08% annualised).

    * The ASX200 actually closed today at 5093.2 representing a net profit for the quarter so far of 0.02% (0.08% annualised). Wow, a whole full point up on where we started the quarter! ;)

    Using yesterday's actual numbers, Navra is underperforming the ASX200 index for the quarter by 0.28% (-2.30% - -2.01%), or 1.13% annualised.

    Will we get to a positive return on the fund for the quarter? Don't know... The ASX200 is positive as at today's close but the fund is lagging the index so would need the ASX200 to lift further to bring it back to a positive return for the quarter. Today's close on the ASX200, even though a positive return for the quarter, is not enough to drag Navra into positive territory I think.

    What's interesting is that we have had what some would argue is a fairly volatile quarter, however the volatility has been held within a relatively tight trading range. The result is that despite this perceived volatility, Navra is still lagging the index. This tight trading range volatility seems not to be the type required by the DCT trading system to extract incremental value out of the market.

    Here's the latest chart of performance.

    Cheers,
    Michael
     

    Attached Files:

    MichaelW, 27th Sep, 2006
    #29
  10. gazza

    gazza Well-Known Member

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    Farrer
    I also think it is important to note that NI is an income fund and that's the primary motivation for investing in it (any CG is a bonus). It is not necessary for the fund to have a positive quarter in order to have a distribution. Michael's description of the trading volatility should ensure there is still a distribution this quarter (because of the fund's trading style) although not of the size of last quarters :(

    Gazza
     
    gazza, 28th Sep, 2006
    #30
  11. Smartypants

    Smartypants Well-Known Member

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    This is the part that gets me, and I have mentioned it in a few threads.

    Yes, the NI is an income fund, but surely there should be some CG as well, otherwise your holdings will go backwards over time. If that is the case, whatever money you borrowed to invest into NI, you could have just placed it into a high interest account and withdraw a certain amount (say 10%) each year.

    Just when I think I have my head around the whole concept of NI, I read comments like what gazza has just posted and get confused again.
     
    Smartypants, 28th Sep, 2006
    #31
  12. Simon Hampel

    Simon Hampel Founder Staff Member

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    Nope, your holdings won't go backwards without capital growth.

    If there was always zero capital growth, then at the end of each year once all distributions are calculated, the unit price would (in theory) revert back to 1.0000

    However, if you have a situation like we've had this quarter with NEGATIVE growth, then yes, you are going backwards, and any distributions paid will actually make things look worse (dropping the unit price further). But that's just a short term thing - there are always going to be periods of negative growth - the market doesn't always just go up. That's why the suggested investment timeframe is 5 years+.

    In general though, you should expect there to be *some* capital growth in the NI funds over time.
     
    Simon Hampel, 28th Sep, 2006
    #32
  13. gazza

    gazza Well-Known Member

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    Agree totally with Sim. And a quarter like this one is where SANF is very important. If you are using the income the fund generates effectively eg. paying for holding costs of negatively property, paying down non deductible debt, etc then you have to be prepared to accept that there will be times when you are could be sitting on (a sometimes substantial) paper loss. For those of us who bought into the fund at $1.13 and above, this is even more painful :( Given this scenario you need to be able to effectively manage your LVR if you have a margin loan. As Sim has mentioned the investment timeframe is 5 years+ and you need to view your investment in that light. Personally as I said , I view any CG as a bonus and as long as I ensure I manage my LVR so as not to get a margin call, I am more than happy with the income the fund has generated for me over the last 3 years.
     
    gazza, 28th Sep, 2006
    #33
  14. Tropo

    Tropo Well-Known Member

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    Smartypants,

    I would say that NI Fund is doing quite well in the current market conditions... There is no reason to be upset.
    You can not win all the time. Do not forget that we have got 3 quarters to go in this financial year.
    So ... stay :cool:
     
    Tropo, 28th Sep, 2006
    #34
  15. MichaelW

    MichaelW Well-Known Member

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    Gazza and Sim,

    I think you're both missing the point. You're zeroing in on the "residual" capital gain after the distribution and arguing this is a bonus. Smartypants' point is a good one. Lets just look at this period in isolation to illustrate it better:

    Fund opening price: 1.1007
    Fund closing price: 1.0977 (extrapolated close yesterday)

    So we have a trading loss for the period.

    Distribution paid: 0.03 (just a guess)
    Fund closing price post distribution: 1.0677

    i.e. the capital growth for the period does not offset the distribution paid and the fund is going backwards. Your "residual" capital gain in this instance is not zero, but is -0.033. So long as that residual capital gain is zero or better then I'm happy, but in negative periods like this the fund is definately headed south. To say otherwise is misrepresenting the returns and hiding them behind smoke and mirrors around "income" versus "capital gain". At the end of the day the fund has to make a capital gain if it is to continue to pay an income. End of story.

    Having said that, the fund has some historic growth held in it above the distributed income so can afford to pay a distribution without dropping below the magic $1.00 level. But, if we have too many negative periods the fund will start eating into its equity to fund ongoing income commitments and that is not a good thing. I recognise the 5 year horizon so am not put off by one bad period, but to paint it as other than a bad period is misleading IMHO.

    Cheers,
    Michael.
     
    MichaelW, 28th Sep, 2006
    #35
  16. MichaelW

    MichaelW Well-Known Member

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    Sim,

    This is wrong. Your holdings will go backwards without capital growth by the size of the distributions paid. Read my post above. You need capital growth to fund the income distributions and maintain your capital base at a constant level.

    Its the "fund holdings" that we're talking about here. Once the distribution is paid its gone. Lets not complicate matters by talking about capitalising distributions. This is all about maintanence of the capital base after taking the distribution and putting it to a different use.

    No capital growth equals eroding capital base, pure and simple.

    Cheers,
    Michael.
     
    MichaelW, 28th Sep, 2006
    #36
  17. gazza

    gazza Well-Known Member

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    Michael

    I don't agree that you need capital growth to fund the distributions(necessarily). what you need to be do is make a profit buying and selling shares and that profit will get distributed as income. If a share starts the quarter at $1 and ends the quarter at $1, you have had no capital growth but you might have made capital gains during the period by buying and selling the share as it traded up and down around $1 (and you would get some income). So if you had bought into the fund at $1, at the end of the quarter, your capital base is still $1 but you would have received some income. Unforutnately most of us didn't buy in at $1 meaning our capital base will be eroded if the unit price falls below our purchase price but as I said it is a paper loss and needs to be managed. If it continues and you can't manage it, you will be serious trouble.

    I do agree with you in that if the overall value of the shares dropped, the value of you holdings will go backwards and if continued over a long period, would be unsustainable (and is exacerbated by the income distributions).



    Gazza
     
    gazza, 28th Sep, 2006
    #37
  18. Simon Hampel

    Simon Hampel Founder Staff Member

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    No I'm not wrong (sorry) ... but then I'm not sure you are either ... I think it comes down to semantics.

    We need to be very careful about out terminology here to prevent confusion.

    1. capital growth = an unrealised gain brought about through an increase in value of the underlying shares. This is reflected in the unit price, but is not reflected in distributions until it is realised (ie profits are taken), at which point it becomes income.

    2. income = trading profits, which come about through buying low and selling high. To everyone else this may look like capital gains, but to a trading fund, this is INCOME and is paid out in distributions.

    So, what the fund does is buy shares and sell them (hopefully) when they go up in value. This makes the fund income. The fund must distribute all of this income by the end of the financial year (minus costs).

    At the same time, any unsold shares still retain residual capital growth. This is reflected in a higher unit price at the end of the financial year. This is where the unit holders get capital growth from. It has nothing to do with distributions (until the profits are realised by those shares being sold).

    What happens during the quarter is that the unit price rises by the size of the accumulated income plus any residual capital growth. Of course, this growth may be negative, in which case if the accumulated income is less than the size of the negative capital growth, then the unit price will drop.

    Either way - at the end of the quarter, the unit price will have risen by the amount of the trading profit for that quarter (which would have started out as unrealised capital growth but is now converted to income when the gains are crystalised).

    And then when the distributions are paid out, the unit price drops by the size of those distributions.

    So - just to be clear here, I am using three different terms with very deliberate (and deliberately pedantic) meanings.

    1. capital growth = unrealised increases in share prices
    2. capital gain = realised increase in share prices
    3. income = returns from dividends, plus (in the case of a trading fund), the capital gains made from realised increases in share prices

    The reason I make these distinctions is to clearly indicate that what we receive at the end of the quarter in our distributions is taxed as INCOME, and not capital gains.

    The whole system relies on capital growth to work and on capital gains for income (although we do also get a little bit from dividends).

    When you wrote "Your holdings will go backwards without capital growth by the size of the distributions paid." ... I think you need to explain this the other way around. You don't just get paid distributions without capital growth happening first.

    1. shares go up in value
    2. unit price goes up as a result of 1
    3. shares get sold for a profit
    4. income gets paid from profits
    5. unit price goes down as a result of 4

    ... this is the way it has to happen.

    The tricky bit is that while all this is happening, the value of the whole portfolio will also be changing because of changes in the underlying share values. Thus, if at the end of the quarter the shares have dropped in value by more than the profits made throughout the quarter, then the unit price will drop below the unit price at the start of the quarter.
     
    Simon Hampel, 28th Sep, 2006
    #38
  19. Simon Hampel

    Simon Hampel Founder Staff Member

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    No we don't (necessarily) - we have had negative capital growth for the period.

    Yes, we may have made a trading loss - but we won't know that until we see a zero distribution at the end of the quarter. You can't have a "trading loss" and also distribute income ... you can only distribute trading profits.

    Again, I think you'll find that it is the NEGATIVE capital growth that causes the fund to go backwards. That is simply because the value of the shares in the portfolio has dropped (by more than the profits made during the quarter).

    If the shares don't change in value year-to-year, the unit price will always end up at 1.0000. That's how unit funds work.

    The only way the unit price can drop below 1.0000 is for the value of the assets held by the fund to drop in value.

    The only way the unit price can drop to zero is for the shares in the portfolio to all drop in value to zero (and for them to throw all their cash away trying to buy shares that are going bust).

    Yes, the fund is dropping in value - but only because the shares are down. "Heading south" is not a particularly good way of describing it in my opinion. There has been negative capital growth for the quarter, and this will continue for as long as the shares the fund holds show negative growth.

    Correct. But there are two variables in the equation - capital GAINS made from trading profits and capital GROWTH from unrealised gains of the underlying portfolio.

    Like you said, you need capital GAINS to have the fund make distributions, even while there may be negative capital GROWTH over a short term period like we've seen now.

    Umm ... the fund doesn't eat into it's equity to fund income without there being a capital gain made first. It distributes realised capital gains. If it doesn't make a capital gain, it doesn't distribute income. If equity falls in the meantime because of a dropping market - then so be it ... that's the second part of the equation that determines unit price ... capital growth (which may be negative from time to time).

    The only income "commitments" the fund has, is to pay out already earned trading profits. It is entirely possible for there to be zero distribution for a quarter - if trading losses and expenses outweigh trading profits.

    Although I'm not sure if the fund has the ability to distribute capital as income ... that's actually a good question to ask Bill and Steve. I wouldn't have though so (and certainly don't remember reading that this was possible) - and that's a dangerous game to play in my opinion.

    Anyway - my point is that if we have negative periods it is because the shares have gone down in value - ie. the market is down. I downplay this because it's just movements in the sharemarket.

    Sharemarket goes down, sharemarket goes up, cycle repeats (with hopefully more up than down).

    It's kind of what we expect to happen. No big deal in my opinion.
     
    Simon Hampel, 28th Sep, 2006
    #39
  20. Jane M

    Jane M Well-Known Member

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    Thanks Sim, Thanks Michael, for the discussion
    Real example
    Bought units July 05 - held now for 14 months
    Currently unit value 5% approx below purchase price, at the end of a quarter.
    Somehow, in an unusually positive market for most of this time - this seems of some concern? Even given the distributions!
     
    Jane M, 28th Sep, 2006
    #40
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