Managed Funds Navra NO LONGER an Income Fund ?

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

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  1. bundy1964

    bundy1964 Well-Known Member

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    I think I have 1.8% left to claw back from the correction and all it required was a calm mind and no panic selling another day like today and the blip on the radar would be wiped off for me.

    Only downside so far has been not having the LVR to go shopping for bargins.
     
  2. Simon Hampel

    Simon Hampel Founder Staff Member

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    Given that such a large percentage of the gains are distributed - the unit price does tend to drop quite a lot at the end of each quarter.

    You must remember that if you purchase your units at any point beyond the beginning of the quarter, there is a good chance that your unit price will drop below what you paid for it at the start of each subsequent quarter (until there is sufficient unrealised growth to compensate for it).

    It is an interesting phenomenon - and completely reasonable when you think about it ... and there are some unexpected benefits - if you were to sell, you will most likely incur a capital loss, which can be used to offset capital gains.

    The key thing you MUST understand is that considering the unit price on its own will NOT give you an accurate indication of the return of a fund (any fund) due to the way distributions work.

    If you have been in the fund since the very beginning, and have reinvested all distributions, then you should be somewhere approaching 70% up on your money by now.

    Put it this way - I've been in the wholesale fund nearly 2 years, and as of yesterday's unit price, my holdings are worth a whopping 1.35% more than what I paid for them ... but I've received 27.37% of what I invested back in income ... total return is 28.7% (not annualised), or about 13.9% compound.

    I know it's difficult to deal with a unit price below your average buy price - but it's not unusual at all - unless you only ever buy at the very beginning of the quarter (or you buy funds that have very little distribution) !!!
     
    Last edited by a moderator: 6th Mar, 2007
  3. TPI

    TPI Well-Known Member

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    Hi,

    Just a quick post, are people investing in the Navra Income fund also gearing into it???

    I would have thought any form of gearing into a managed fund really needs to be in a fund where there is at least moderate prospects of capital growth. High income alone would not suffice???

    GSJ
     
  4. Simon

    Simon Well-Known Member

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    You bet.

    People use the first 8-9% distribution to pay the interest and the rest is gravy!!
     
  5. Glebe

    Glebe Well-Known Member

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    Precisely.

    If it pays for the cost of the borrowed money, anything above is free money.
     
  6. gazza

    gazza Well-Known Member

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    and that free money has amounted to around 7% pa over the last couple of years since I have been in the wholesale fund. And I have had almost zero CG. Who says income with no CG won't suffice and how can anyone say that Navra is no longer an income fund? Whether the fund can sustain these numbers in different market conditions, time will tell but if it does, it will continue to meet my expectations and pay for my 3 very negative geared IPs.
     
  7. TPI

    TPI Well-Known Member

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    Leveraging into income funds???

    Yes, but, if the the capital value of your initial investment falls significantly, then you would need a very high % income return to give you an equivalent absolute $ income return - and therein lies my issue with leveraging into funds that primarily have an income strategy. At the least, 'moderate' capital growth must form part of the long-term strategy of the fund you are leveraging into. Furthermore, in the long-term your initial capital will be worth much less due to the effects of inflation, and your % income returns will need to be even higher.

    If Navra can achieve (or has been achieving) 'moderate' capital growth, with a high-yielding 'income fund', then that is OK...Can it be sustained though??? I am not at all convinced this is very realistic or likely...

    Alternatively, if you are able to borrow at very low interest rates, that that is OK too...

    GSJ
     
  8. iiinvestor

    iiinvestor Well-Known Member

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    That's a good point, but... if you are using the income to support an on-going interest expense, then that long-term debt won't be increasing with inflation and hence there isn't a direct requirement for inflation-indexed growth.

    With all of that said, no one wants an eroding investment. With so many to choose from, you might as well go for one with some growth to keep your investment worth at least the same, if not more.

    So yeah, back to my first thought, good point. :)
     
  9. TryHard

    TryHard Well-Known Member

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    I might have just heard a different version but I remember Steve saying he borrowed $150K from his father in law when NAB hit something like $24.75 and he knew it was a once-in-a-lifetime chance. I don't follow the market, but I think it was in 200x (following whatever the UK debacle was - brain too small to remember?) So he has hit him up in 1987 and in 200x, or did one of us hear wrong ?

    If the double dipping is the case, Steve's father in law probably doesn't answer the door when he knocks now :D
     
  10. TryHard

    TryHard Well-Known Member

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    Can I ask this question innocently ? I've seen Peter Spann touted as a guru in a number of forums, and often used as a benchmark against other self-claimed gurus (Steve would be one).

    Are there a similar set of historical metrics (as those being requested for NavTrade) on Peter Spann's past performance that justify this faith ? I make the point I ask innocently because for all I know there is something I'm unaware of that shows Peter is the shining light - I just haven't ever seen anyone point it out directly. From what I've seen in his (apparently honest and often amusing) posts, he admits to some fairly abyssmal results at times (if memory serves, I can't recall the exact situation he referred to).

    Anyone ?
     
  11. voigtstr

    voigtstr Well-Known Member

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    Whats the difference of just putting your money into ingdirect st 6.25%. (dont say 0.75%)

    Actually nevermind... the penny just dropped, the 7% net return is on your leveraged funds..
     
  12. gazza

    gazza Well-Known Member

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    exactly voigstr, if I had the cash, sure I'd put it into ING but the 7% is derived solely using OPM.

    GSJ, I agree with your comments about the fund needing to protect your capital base. Given I bought the majority of my units at 1.13, I feel I am a little more vulnerable to price dips. I am looking to do something similar to what Michael did, sell out when the price is high and then wait to get back it at a lower price (I was thinking of doing it this time round but didn't get round to it) but timing your exit and entry can be tricky. Michael sold out at 1.1624 and the entry price is already back at 1.1552 or thereabouts so not worth it. You would have to wait until after the distribution to get back in and who knows what might happen between now and the end of the month.
     
  13. gazza

    gazza Well-Known Member

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    Tryhard

    In terms of Peter Spann's funds, I invested in the fund that he and Macquarie put together, also an income fund - Macquarie Equity Enhanced Income Fund. It is based on some of Peter's own trading strategies. My investment is again 100% leveraged but is capital protected (as long as you keep you units until the end of 2013). Again is it promoted as an income fund but there might be some CG. It started trading in Jul06 and currently it's performance is 6.4% (net of all fees). As I said the money is a 100% loan from Macquarie at around 7.5% I think, so at this stage it's almost at break even although the interest was prepaid so I received a tax deduction. The income though is only distributed annually (in July) so I have to pay next year's interest before receiving this year's income.
     
  14. Simon Hampel

    Simon Hampel Founder Staff Member

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    That's what I find difficult to understand ... an income fund which causes an effective cashflow crunch by pre-paying interest and then distributing income only once a year ?

    Why would you invest in such a vehicle ? If it were for cashflow - once a year is a little infrequent for distributions in my opinion. I don't see why else you woud invest in an "income" fund than for cashflow ?

    I haven't looked at the funds - so I'm not in a position to comment on them.

    What are the fees like ?
     
  15. Simon Hampel

    Simon Hampel Founder Staff Member

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    Are you using all of the income for other purposes (servicing debt etc) ?

    Do you need all of the income ?

    The whole reinvesting income versus servicing debt is not an exclusive either-or function ... you can do both !!

    Take the distribution as cash - use what you need to service your debt, and the reinvest the rest for a bit of additional growth. You would be reinvesting near the beginning of the quarter, so unit price is generally lower and you get more units for your money.

    If your interest bills are higher than your distributions so you don't have any surplus cash ... you need to invest more in the fund to get more cashflow :D
     
  16. iiinvestor

    iiinvestor Well-Known Member

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    I believe he 'peddles' two measures:
    a) His personal success, and
    b) The returns from his advice (apparently 20%+ over 5 years or so).

    From an outsider (read: less info), I think his personal success has more to do with his extroverted car-salesman persona than his investment philosophy. He has even said something to this effect at seminars; that he is unsure if he'd even be successful without his business. So I don't think his clients can really use his success as a gauge to their success, unless they're equally as insufferable.

    As for the second measure, it sounds very subjective to me and I wouldn't be surprised if it was calculated before fees. Don't they say the only way to make money from active funds management is to be the manager? :) As you can see, I'm a real cynic when it comes to guys like this (not fund managers, commission-based financial planners).
     
  17. gazza

    gazza Well-Known Member

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    Hi Sim

    All very good and valid points.

    In terms of the income from Navra, I have been using some of it to pay the holding costs of my IPs and the rest to reduce my margin loan debt. Do I need to use all of it for that purpose? Probably not and yes I could chose to reinvest but I feel I have enough exposure to the fund at this point in time and I am looking around for other funds to provide the CG.

    In terms of the Macquarie fund, I did think that annual payment of income was a disadvatage but liked the trading strategy of the fund and given my main risk is the interest payment each year (and that is partially offset by tax refunds), I figured it was a calculated risk to invest. The fees are very high (as most Macquarie funds are).

    Gazza
     
  18. coopranos

    coopranos Well-Known Member

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    I have no idea why the whole concept seems so difficult for people to understand.
    People have said on here that getting a 10% return on 100% borrowed funds at 9% is not impressive, and that they havent received capital growth on their holding.
    First of all, if you are borrowing 100% IT IS NOT YOUR MONEY!! Would you rather get 1% on $100k of borrowed money, or 0% on $0?? It is a really basic concept! If you are looking at an investment, you first of all look at the investment return, then you look at how leveraging could help. You dont say "my property is only growing at 10% a year but it is costing me 8%, so that is only 2% I am really upset about it". That makes no sense. The investment returns 10% whether you are leveraged or not. Now you look at how leverage can help you. So if I invest my $5k in a $100k property that grows at 10%, I have made $10k less $8k interest = $2k (ignoring rent) on a $5k investment. All of a sudden it goes form 10% to 40% through leverage. Dont whinge about an investments return in terms of your own leverage situation, optimise your leverage situation so you are happy with the return, or change investment.
    On the lack of capital growth, I dont know what you expect: did the fact that it uses a "NAVTRADE" system lead you to believe they were holding the underlying assets for growth, or possibly 'trading' them for income? If you buy a property for $100k and sell it for $120k, you cant complain that you get no growth out of it anymore, because you have made $20k from trading it!
    If you are keen on higher growth, maybe go for a fund that does not have Trading for Income as part of its strategy!!
     
  19. Glebe

    Glebe Well-Known Member

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    Excellent point :)
     
  20. Takestock

    Takestock Well-Known Member

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    This is one of the best posts I have seen for a while and is one of the points Steve Navra was trying to make! Well said!

    Cheers
    Steve P
     
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