Managed Funds Navra Introduce Management Fee

Discussion in 'Shares & Funds' started by Alan__, 30th Mar, 2007.

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  1. Simon Hampel

    Simon Hampel Founder Staff Member

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    That's a very good question.

    My strategy has evolved quite a lot over the last year or so - originally I was a "buy-and-hold no matter what, so long as I felt it was still a sound investment" kind of guy.

    Since then I've modified things quite bit - after doing a lot of charting and analysis of the performance of the funds I hold, I came to the conclusion that I had a few funds that were taking up capital and simply not returning much at all. Some of the funds had historical periods of 12 months or more, where the total return for was effectively zero (ie it took 12 months for the value of the fund to return to it's previous high). More recently, I've had funds do nothing for over 6 months ... which was a complete waste of capital when there were other funds I held which had done 20%+ in that time !!

    Given the relatively aggressive timeframes I'm working with these days, I figured I would be far better off trying to make sure that my money is always working for me - by focussing on those funds that are actually performing, and reducing my exposure to those which aren't.

    This was a major change in strategy and mindset ... rather than "buy when it's cheap and sell when it's gone up" strategy ... it became a "sell when it's trending down, buy when it's trending up".

    Note the deliberate choice of words there ... "buy when trending up", not "buy when high" ... yes, the two are synonymous to a degree ... but it's about observing the behaviour of the fund over time and identifying what the medium term trend is ... and acting based on that trend. I use a series of moving averages to identify the trends.

    The whole point of the exercise is to ensure that my money is working for me, and not just sitting there costing me interest. I'm down to six funds that I focus on - although I am considering adding a seventh.

    So - when to sell ?

    That is the most difficult question to answer, and one I don't think I've quite got right yet (see my post in another thread about my recent bad decision about selling out of a fund ... although that was more about HOW I sold out than when I sold out).

    In general, my strategy is to hold through short term volatility, and sell if I see the trend change to a downswing. This isn't about trying to pick the top - it's about minimising losses and putting that capital to work elsewhere. Depending on when I bought in, it may mean taking a capital loss - but I'm okay with that.

    I base my decision on what the unit price is doing in relation to the moving averages ... I use 20, 50, 100 and 200 day moving averages. Although my system is actually a lot more complicated ... in simple terms, if the share price drops below the 100 day moving average for more than a couple of days, I'll sell down my holdings (depending on how sharply it has dropped, I'll either sell 50% of my units, or I'll sell all but about 90% of them). If the unit price crosses the 200 day moving average, I'll sell out of the fund completely.

    The trick is to not sell too soon ... I've seen plenty of times where the fund has "bounced" off the 100 day moving average (or even slightly below it), so it requires patience - wait a week, and if it is still down, only then sell.

    Naturally, if the unit price is dropping very sharply (like during the recent correction), things start to get a bit more nervous. I was very pleased to see how my system worked with that recent correction - none of my funds approached the 100 day moving average, so I was not tempted to sell any of them, and indeed, most of them have since bounced back and are now back above the 20 day average. The key is to consider whether this correction is the start of a downtrend, or just short term volatility. I doubt a longer term down trend will start with such a bang - I think it's more likely to be a whimper, so I tend to count on there being a bounce for such sharp sell-offs.

    Recently, the CFS W/S Property Securities Fund did cross the 100 day moving average for long enough to trigger a sell-down (I sold about 90% of my holdings), but of course, in the last two days, it's gone back up over 4% ... it's still below the 50 day moving average, so I'm not tempted to buy back in yet (it has to get back above the 20 day moving average, and the 20 day moving average has to rise above the 50 day moving average before I will consider the uptrend to be confirmed). Time will tell if I really messed up the timing on that transaction - the property sector has been very nervous of late, and the index is down a lot from it's recent highs.

    I also sold out of the Platinum Asia fund the other day because it crossed the 100 day moving average ... but I was impatient with that one - my system expects me to wait to see if remains below the 100 day moving average for more than a couple of days ... and in the last couple of days, the Asian markets have bounced back. Again, time will tell if this is just a temporary up-tick in the downtrend, or whether I actually managed to pick the bottom of the market to sell :rolleyes: I should have waited until I had confirmation. Grrr.

    The key is that you can never be sure when the trend will reverse, until it actually has. It's not about predicting the market - it's about riding your winners, minimising your losses, going with the trend, and letting the system make the decisions. Funnily enough, that sounds suspiciously like what Tropo was trying to tell me all along :D

    Interestingly, the Navra fund is very stable ... the last correction saw it barely cross the 50 day moving average (and then only for a day). At the same time, the Geared Share fund got closer to the 100 day moving average, but again, only crossed the 50 day moving average for a day or so.
     
  2. Nigel Ward

    Nigel Ward Well-Known Member

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    I guess that's one of the benefits of an actively traded fund that can be substantially in cash. From memory it's been between 30-40% cash for a while...

    N.
     
  3. johnnyb

    johnnyb Well-Known Member

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    Sim,

    Thanks for such a great explanation of your system. It's like technical analysis for managed funds rather than shares :cool:

    When you hear share traders talk about TA systems it seems the reason many of the systems fail is that because the trader involves their own emotion in it, ie the buy and sell triggers rely on more than just the technical indicators. From your above two examples it sounds like this is what you may be doing. Do you think it is possible to codify your rules even further?

    Maybe with managed funds it is a bot harder to be completely rigorous with the triggers and rules since the timeframes for buying and selling are a bit unpredictable anyway, so you need a bit of flexibility in your system.

    John.
     
  4. Simon Hampel

    Simon Hampel Founder Staff Member

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    Yup - I got impatient and didn't let the system do its job. I did build mechanisms into the system to cater for these situations, and I ignored them. That being said, there was a reason I pulled the plug early ... the charts do show a pretty clear down trend while everything else I hold is trending up ... I would rather have that capital invested in funds that are showing a clear up-trend.

    The property securities market is looking quite shaky of late ... commentators have been observing for a while that that market segment is over priced, and with threats of increasing interest rates, and potential property market woes in the US, the whole segment is feeling rather fragile. There has been a lot of volatility recently, and I'm not sure it is going to settle down any time soon.

    At the end of the day - the growth I missed out on counts for less than 1% of my entire portfolio, and I can't effectively lock in those gains anyway with the delays in processing sales ... gains from the last few days could just as likely to disappear again (eg. XPJ down 1% today).
     
  5. Andrew G

    Andrew G Well-Known Member

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    Well Sim,
    That was a massive post for an answer, and I appreciate the detail you went into! You seem to have really done a lot of homework on your system.

    While I understand what you mean about rolling averages, and I know from previous posts you mention you have a "program" that you created - I am curious how you track all the details. I'm guessing you enter daily prices from the funds you have into this program (is it an actual custom program, or an excel spreadsheet as an example?) and the program will provide calculated results that you can observe easily?

    I am a fairly analytical sort of person, which by no means suggests that I will be getting everything right, but I do enjoy charting & tracking etc., so over the next couple of weeks when I begin investing I will use InvestSMART to track the daily prices of my portfolio and copy daily prices to Excel. The only problem with this is, when I go in for my Air Force training, I'll be effectively cut-off for around 6 months!!! There goes the "anything <100" moving average charts!

    Andrew.
     
  6. Simon Hampel

    Simon Hampel Founder Staff Member

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    Yes, I have a custom program which retrieves the information from the fund manager websites, calculates the moving averages and such, and then generates charts so I can observe performance visually.

    The biggest problem I have with the system is performance (it takes a while to process ... I need to optimise it before I make it available to other people) ... and data ... the data and data retrieval method is currently what I consider to be unreliable - especially around distribution time. Once I can get those sorted out, I will try and make something available to everyone else.

    Tracking my actual portfolio and transactions is done via a spreadsheet - but it's way too complicated to post here ... the documentation on how to use it would fill a book (comes from nearly 3 years of tinkering). I would like to convert this into a web based application that hides all the complexity and removes the manual price update step - then the portfolio monitoring can be completely automated, with you only needing to add transactions as they occur.

    Don't hold your breath - but I'm hoping to find time later this year to work on this. I do have a lot more time on my hands these days, but have a lot of short term obligations to fulfill first - once that's taken care of, I'll see what I can do.
     
  7. Alan__

    Alan__ Well-Known Member

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    Sim,

    Do you know of any decent 'add-ons' that allow decent Charting of Moving Averages etc using Access without extensive Programming?
     
  8. Simon Hampel

    Simon Hampel Founder Staff Member

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    You can do moving averages in Excel easily enough - either using the "trend" feature on a chart, or calculating your own moving averages as additional columns of data to be shown on the same chart (this is how I did it before I wrote my own program).

    I don't use Access - so don't have any suggestions there.
     
  9. Alan__

    Alan__ Well-Known Member

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    Ok.......thanks Sim.

    Yes.....I'd done a few things like that in Excel but when I tried something else in Access recently the Charting seemed very basic.
     
  10. Andrew G

    Andrew G Well-Known Member

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    No worries. I'm not an expert in Excel, but I can usually get it to do what I need. I believe I can create a sheet that I can use to track rolling averages for various time periods, and produce charts also if required. I would normally like to do something like that anyway, just for my own curiousity/satisfaction. My only limitation is that I would need to input the figures dailyhowever really with just a few MFs that won't take more than a minute/day using a portfolio watcher such as InvestSMART. Either that or I do the lazy option and use a weekly figure depending on my availability.

    In the end, its all good fun!!

    Andrew.
     
  11. johnnyb

    johnnyb Well-Known Member

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    Sim,

    I've been looking at my managed funds recently and have been considering the implications of your type of trading strategy. One question I have is about capital gains. When you decide to sell units in one fund and transfer to another do you take into account your 'losses' due to capital gains tax (especially if you've held for less than 12 months)?

    Wouldn't the CGT effectively decrease your overall returns? Of course if the fund you're selling is a real dog then you'd be in front overall (assuming the fund you buy performs well), but in general I imagine the impact of CGT would lower the price point at which you decide to sell. Do you take that into account at all?

    Also, isn't it a nightmare at tax time, or does each fund send you an accountant friendly statement consolidating your transactions for the year?

    John.
     
  12. Simon Hampel

    Simon Hampel Founder Staff Member

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    Interestingly, it isn't necessarily as big a problem as you might think - although it does depend on the types of funds you invest in.

    I've discussed the phenomenon in other posts - if you invest in income funds (or any fund which returns a significant portion of its gains via distribution), you'll find that the capital gains are actually no where near as big as you might expect. It's obvious when you study the movement of the unit price throughout the distribution period. With the unit price dropping because of distribution, you find there isn't always as much capital gain as you might have thought. Even more so if you build up your investment in a series of smaller amounts over time like I do, rather than in one large lump sum.

    This phenomenon is very much present with a fund like NavraInvest. Naturally though, a high growth fund that doesn't distribute much income, will tend to see a lot more capital growth and potential CGT.

    I'm continually refining my strategy, and I'm now at the point where I've identified a clear exit strategy for my funds (that was the most difficult part of my strategy) - and it involves only selling under particular circumstances ... which I would generally hope would be infrequent. I no longer sell to realise gains from my best funds (I let them run), instead the only time I will ever sell out of a fund now is if it no longer suits my goals, or (more likely) because it has entered a downward or extended sideways phase (eg. CFS Property Securities ... I sold most of my units several weeks ago).

    As a result, capital gains isn't so much of an issue ... but even with the significant number of transactions I've made this year (I count 57 individual parcels of units sold so far), my net gain is only around $2,800 ... I've mostly sold out of underperforming funds rather than those which have seen all the gains.

    The key is that I'm never selling out to meet a price ... I'm selling because I don't want to hold that fund right now ... so CGT doesn't come into the equation.

    Depends on what gives you nightmares :D

    I keep very careful records of all my purchase/sale transactions as they happen, which spreads the load throughout the year rather than all at tax time. My capital gains spreadsheet is rather large and complicated so far this year - but it makes it easy to transfer all the data to Quickbooks, which is all that gets sent to my accountant.

    I hope to automate the data capture more by writing a database driven program to do all the unit tracking for me. That's a project for later in the year.
     
  13. johnnyb

    johnnyb Well-Known Member

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    Sim,

    Thanks for a great reply, as always.

    John.
     

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