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Navra NO LONGER an Income Fund ?

Discussion in 'Managed Funds & Index Funds' started by seaview, 5th Mar, 2007.

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  1. seaview

    seaview Well-Known Member

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    Peter Spann, in his free video on investing (available from Freeman Fox) makes the point that there are three things an investor should be looking for:
    1. Income
    2. Growth
    3. Low Risk
    He believes that it is only possible to obtain two of these results with any investment, and if one takes the time to think about this, I suspect he is right.

    Why then is Navra compromising a wonderful low risk income fund to keep propping up growth as a feature.

    A friend of mine just saw her Navra adviser who told her that there would only be about a 3% distribution this quarter (10% for othe year) BECAUSE they want to claw back several percent (yet again) to placate the people who are complaining about the lack of growth in the fund.

    However, the main reason these people complain is probably because Navra encourage them to reinvest their distributions to help pay their margin loans. But this is not a very effective strategy: firstly they are using after tax dollars and secondly it compromises the funds unique income producing feature.

    Instead, perhaps they should be encouraging people to invest up to a quarter of their portfolio in higher growth funds which would allow them to capitalize their margin loan interest (eg several reputable LPTs are returning 30-60% the past year, also small company funds, and there is also geared shares and asia if they can handle the risk). Many of these funds have returned over 20% over 3 years, so there is some substance in the reliability of such returns, and risk can still be kept fairly low. Indeed, diversification is a widely known risk reducing strategy in itself. It is interesting that the Navra adviser eventually (reluctantly) suggested other high growth funds to achieve this purpose.

    The Navra adviser also said there would only be about 10% distribution this year: again, so they can pump up the growth numbers. If so, they may find far more people will complain about the lack of income compared to the lack of growth. Perhaps they need a reminder that far more people count on Navra income to pay negative gearing etc than those who are looking to it for growth. There are far better funds out there that can deliver growth, and without using after tax dollars to fund it.

    Perhaps they encourage people to reinvest in Navra so they can grow their Funds, however they are more likely to lose those of us (i.e. most of their clients) if they compromise the income this way.

    They would actually get far more clients and FUM by promoting the fund as a superb income vehicle, with minimal growth. That is why many of us bought into it to start with. If they regularly only deliver 10% income then many of us would be better served elsewhere.

    Please, don't reply to this that we need to take a 5 to 7 year time frame and that Navra only promoted 10% as a probable return rate. This has been debated before - the fact is that most investors look at past performance when choosing a fund, and Navra has delivered about 15% income quite regularly. I just think they need to realize that this is NOT a growth fund, but works better for everyone as an Income Fund, and they would be better to promote it that way, and advise their clients accordingly.

    Well, glad I got that off my chest. I wonder if anyone who is going to the Navra coctail party next week might mention some of this to Steve. i.e. how many of their clients would they lose if they regularly start delivering only 10% income? and should they continue to try to be both a growth and income fund?

    Cheers
    Seaview
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Umm ... seaview ... I respectfully suggest that there are some things you don't understand about managed funds yet.

    I'll mention a couple for you.

    1. All unit trusts must distribute all income at the end of every financial year.

    2. Unit trusts do NOT legally have the discretion to withhold earned income part the end of the financial year to "reinvest for growth".

    3. Unit trusts DO have the option to pay distributions at multiple times during the year, where there is some discretion to choose how much is distributed, but points 1 and 2 above still apply - all undistributed income MUST be distributed by the end of the year.

    I suspect that there has been some misunderstanding of what was said.
     
  3. seaview

    seaview Well-Known Member

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    Thanks Sim, I agree I am no expert on funds, but my friend was pretty clear about what was said.

    Can you please tell me if Navra have the ability at the end of the quarter to decide how much of the funds growth they can sell down i.e. sell to realize some income, and by so doing also decide how much they will leave as a growth component?
    Thanks
    Seaview
     
  4. redrover

    redrover Well-Known Member

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    Seaview, Agree 100% with your comments.

    I dont see any growth reflected in the unit price that does not disappear just as soon as it appears. You cannot reinvest your distributions and pay for your -ve geared properties at the same time unless you have a very large amount invested that produces a surplus and I dont think that is the case with any of the investors I know, and if interest rates rise then a negative effect will creep in. If your margin loan is below $250K with most lenders then the interest rate is 9%, and I dont think many people will have invested for a 10% return on that portion of their portfolio, i.e. 1% return - does not keep up with CPI or inflation! why do it!

    Lets see what this latest correction in the market produces! I dont see how they can "predict" a yearly return/distribution of 10% when as they state it is "not a predictive system" but a "reactive" one. The market could do anything between now and end of financial year!! :confused:
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I don't actually know the answer to that question ... that's a Steve question.

    Most of the income doesn't come from the final days of the quarter - it is accumulated throughout the quarter as the fund makes profits. Naturally, trading losses can offset these profits, which will have an impact on the net distribution.

    I don't know how much discretion the fund has to arbitrarily buy and sell outside their trading system ... or whether there is a weighting towards the end of each quarter to focus more on the realisation of profit to show a higher income.
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I don't understand your comment ?

    The unit price drops at the end of every quarter as the fund distributes income.

    The unit price does rise throughout the quarter (and falls as the market falls).

    At the end of the quarter, the unit price should be higher by approximately the amount of unrealised gain + distributed income. At the beginning of the following quarter, the unit price drops by the amount of distributed income.

    You are correct - although you could sell down units as you need them to pay interest costs on your IPs.

    But I take all distributions as cash, use what is required to pay my interest costs, and reinvest the surplus.

    If the fund only ever got 10% return and I was 100% geared at 9%, I wouldn't be too impressed either ... that's not a particularly good strategy. But it has been doing better than this - and even if it doesn't in the short term, I think long term it should average more than 10% (yet to be shown !!).

    But then, there are plenty of growth funds out there which return 40% one year and -20% the next ... your 100% geared strategy there is going to be a lot worse for your returns too ... so it's all relative.
     
  7. Nigel Ward

    Nigel Ward Team InvestEd

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    Seaview

    As I understand it, the NavTraDE system generates buy and sell signals. As Sim has noted, in practice all trusts, including managed funds like NavraInvest, distribute all net income each financial year as they otherwise get taxed at top marginal rate.

    On a quarter by quarter basis the fund will have:

    1) dividends/distributions received from the listed companies/trusts it owns
    2) interest income from cash on deposit with the bank
    3) realised capital gains from sales of shares during that financial year
    4) potentially realised losses from sales of shares below the purchase price
    5) unrealised capital growth from increase in the market price of shares owned but not yet sold.

    Only 1-3 can be distributed (and must be each financial year as noted)
    4 will offset 3.
    5 is not income and is the "growth" you're talking about I think.

    The Navrainvest funds are a tool to provide a level of income primarily whilst still getting exposure to some growth. There are other tools you can use to obtain income. From memory some of the alternatives are discussed in the living on equity articles http://www.invested.com.au/76/living-equity-part-3-optimising-your-3102/?garpg=3.

    To use an analogy, your objection to the fund seems to be, in part, that you've got a spanner and what you want is a screwdriver... You need to use different investment tools for different purposes...

    With respect to what a Navra Financial Services planner has or hasn't recommended...I think it's dangerous to hear outcomes from a planning session second-hand and then assume that those don't meet the objectives of the person. You never know what the client has disclosed in terms of their current financial situation, objectives and real risk profile...

    Just my 2.2 cents worth

    Cheers
    N.
     
  8. Tropo

    Tropo Well-Known Member

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    "....I dont see how they can "predict" a yearly return/distribution of 10% when as they state it is "not a predictive system" but a "reactive" one. The market could do anything between now and end of financial year!!"


    They can not predict, but they can estimate possible outcome....
    :cool:
     
  9. voigtstr

    voigtstr Well-Known Member

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    My understanding of Steve's articles, is that you shouldnt be geared 100% (in fact it is impossible to do so as lender will generally give you a 70% lend maximum). Steve's articles recommend 50% LVR, so your interest figure of 9% should be halved (you are only paying interest on half your invested amount) assuming 10% return, 4.5% pays the margin loan, the other 5.5% can go towards paying investment property shortfalls and/or reinvesting in managed funds and/or can be taken as straight income to live on.
    Someone tell me if I've got it wrong or missinterpreted someone.
     
  10. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    The 100% gearing comment comes from using borrowed money (usually equity from real estate) for the rest of the 30% or so.

    You wouldn't usually pay 9% on the whole 100%, you would either have a smaller percentage based on the amount of cash you put in, or you would hopefully have borrowed the remainder from your real estate equity at somewhat less than 9%.

    The argument still remains though ... if you are 100% geared (even at 8%), and your returns are not much more than this - are you happy enough to take on the risk ? Only you can decide that.

    Personally, I'm counting on average returns being quite a bit higher than 10% (even if short term returns are less).
     
  11. redrover

    redrover Well-Known Member

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    You have missed the point and misread my comment. I am not 100% geared. I referred to that "portion" of your investment that was geared, i.e. you put in say $200K cash and get LE to put in another $200K to match thereby giving you a 50/50 gearing. That is what Steve recommends! The interest LE charge on their $200K is 9%. The total income for the year is 10% against your total of $400K invested, therefore you have got some of the 10% applied against your $200K cash and half of it applied against the LE portion of $200K. So 10% of $400K as income is $40K, offset by a margin loan of $200K running at 9% = $18,000 interest bill, leaving you about $2K profit on that 50% margined part of the total investment. The balance or the other half income being $20K you can apply against your cash portion. All in all not a great return for your hard work.

    The point I was trying to make is that you would not both with a margin portion at all if all you were getting was a 1% return difference between the interest rate and the fund at 10%. Hopefully you would get better returns than that over time. But again, how long do you wait for this to kick in.

    The unrealised growth at the end of each quarter which is not distributed because it is sitting in stocks showing a profit can just as quickly disappear again as the next quarter comes into play and those same stocks showing a profit last week now have lost ground and are showing a loss (probably like the market now). I dont see that you can rely on this growth as being anything more that statistical fact at any point in time as it can increase or decrease with the market but until it is realised as gain or loss it is merely arbitrary.
     
  12. iiinvestor

    iiinvestor Well-Known Member

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    Redrover:

    I think the point they're trying to make is that the fund can still provide positive returns in a sideways or downward market due to regular trading. As you know, the downward trend can be jagged and if you could pick the perfect times to buy and sell, then you may return a sizable profit.

    So that's all fair enough... I think. The big question is: how close will the strategy be to buying/selling at the right times. It may not need to be perfect, but the degree of its accuracy is in question. That's why some people are saying "let's wait and see" and others are saying "I wouldn't bet a cent, let alone $1m, on that strategy".

    Even though the fund hasn't been through very hard times yet, we can still compare past performance to expected performance. That will give us more of an indication on the viability of the strategy than not considering anything at all ("the wait and see approach"). The fund has returned 15-16% from what others have said. I don't know how that return was calculated, but on a discrete annual basis, the ASX 200 has done about 27% over three years. That's based on the accumulation index, not the price index, which is preferred and more accurate for comparative purposes.

    I'm completely ok with the difference of about 11-12% if the fund was going to make positive returns in a sideways/downwards market to supplement my IPs. But that's the million dollar question... will it make positive returns in a less than bullish market? :)
     
  13. redrover

    redrover Well-Known Member

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    Steve said 1987 was his best year for trading. Well this is the golden opportunity to see whether the methodology stands up to scrutiny. As far as I am concerned I am looking at Steve's 20+ years of trading this methodology not just the recent public fund of about 4 years, so I think when people say give it a while, it has already had 20 years to be tested, albeit most of it in Steve's private trading account!!
     
  14. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Redrover - we have had corrections at least as big as the current one (don't know how big this one will be yet though) in each of the last couple of years ... and each time, the fund outperformed the market significantly during that period.

    The trick is that these corrections were relatively short lived ... 2 - 6 months from peak to peak ... and the fund was able to make its profits and outperform on the upswings. For a longer term downtrend (which we haven't seen, and probably aren't going to see now), or an extended sideways movement ... we don't know how the fund will cope yet. According to Steve, past data shows that it should do okay relative to the market.
     
  15. PiggyBank

    PiggyBank Member

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    I was introduced Navratrade method a while back in the 2 day Navra course and have been following the fund since the beginning, both as a share and unit holder. I have listened very closely to all the discussions regarding the funds so far on various forums. Also heard Steve explain how the system works at a high level and show the historical results when he had used this method to generate pretty good results. In fact I have also participated in simulation testing during the course where Steve asked us to randomly choose the share price of Qantas and fed that through his system. And this showed an extremely good result compared to a buy-hold method.

    So what’s changed now?

    I reckon when the system was put in place for the managed fund, the levers had to adjusted to such an extend that it compromised the results – i,e to reduce risks for the mum and dad investors with the view that its better to get a modest return than risk a huge negative result. When Steve used for his personal need and close friends the levers may have been little closer to “adventurous” than the “play safe”.

    I remember Steve saying that he even went to his relatives to borrow (father-in-law if memory serves me right) after the 1987 crash to buy NAB shares. That means he was using some sort of leverage to get the results, which unfortunately the fund is not allowed to use. There could be other things that are different.

    So as a company Navrainvest may have spectacular results only when the share market does a 1987 and how often does that happen? Not a very good outlook for share holders.

    For the unit holders I think the fund is doing what it’s supposed to do so they all should be pretty happy.

    PB
     
  16. DaveJ

    DaveJ Well-Known Member

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    Any chance of seeing past results before the Navtrade 'system' turned into a fund?? (chart would suffice) Past performance(before the Navra Fund) is based on what Steve has 'said in courses' etc. I am by no means saying it hasn't performed but a 'unit price' chart of performance would be very beneficial to this or other thread discussions... If not then it can only be taken as hearsay....

    ??

    DaveJ
     
    Last edited by a moderator: 5th Mar, 2007
  17. iiinvestor

    iiinvestor Well-Known Member

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    For me, that's the second million dollar question... what is the fund supposed to do (its purpose)?

    I think there are three options on the table:
    1) to produce 10% distributions over the long-term
    2) to outperform the market in all conditions
    3) to support -'vely geared IPs

    I don't expect it to do all three and I hazard a guess that the manager doesn't expect it to do all three either. Maybe he hasn't even said it would; this could be second hand info. I would be interested to know though, because this is what seems to have caused most of the tension. :)
     
  18. bundy1964

    bundy1964 Well-Known Member

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    My Mother would love you for saying all that.

    History will show though that capital gain is real :D
     
  19. redrover

    redrover Well-Known Member

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    ....as history will also show that capital loss is real and usually takes more time and effort to replace than it took to get the gain in the first place!

    Unfortunately after being in the fund from the beginning in a small way and then adding to the position quite heavily 18 months ago and several more buys along the way, my average entry price is now about where the redemption price is, so for 3-1/2 years my "capital" investment has grown not at all. About a third of distributions have been reinvested thereby averaging down to the $1.1225 mark. Not impressed.
     
  20. PiggyBank

    PiggyBank Member

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    I think the fund is trying and expecting to do all the above but like other funds can't guarantee anything. The investors have to do their due diligence and decide for themselves if the outcomes meet their requirement.

    Based on the performance of the system in the lab quite a few people got excited - including me, and now there is bit of dissappointment as the results aren't that great. The whole concept of only performance based fees is still unique and if the fund can outperform then it can be very successful.

    PB
     
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