Managed Funds Navra NO LONGER an Income Fund ?

Note, it could be less than this, if income was 10%pa and interest was 9%pa, so 6kpa income for holding 600k debt...1%pa net income...

GSJ

 

I am also trying to emphasise the importance of long-term thinking, and that 600k in 10 years may only be worth 400k in todays dollars, due to the effects of inflation - if there was no capital growth. Hence why, capital growth is central to this investing strategy - not just a 'bonus'.

You would need some pretty amazing % incomes to get the same absolute $ income with 400k as opposed to 600k.

I think I've laboured my points enough, will wait and see what others have to say...

GSJ

 

Yes let's be fair and accurate Mr 27% :

Average annual returns for the periods below to 30 June 2006 for Australian shares
5 year 12.4%
10 year 12.6%
20 year 11.9%
50 year 12.8%
Source: Andex and http://www.vanguard.com.au/library/pdf/Realistic_Expectations.pdf​

So when I say the sharemarket performs around 10-12% per annum I'm pretty comfortable with that range where we're talking about large cap companies... In contrast the 27% you quote is a massive deviation from the normal performance of the share market. To criticise the NI fund for lagging in such highly unusual market conditions is ENTIRELY unfair. And to expect such returns to continue even into the medium term is completely delusional. If that's the sort of return you're betting on you're suffering from a serious dose of short-termitis.

But it's not just NI that has lagged the market. There are some very well respected value managers who have similarly lagged the market.

***note the formatting below is not great, but you can go to the source to see what I'm quoting***

E.g. :

Investors Mutual

Australian Share Fund Performance Compared With Benchmark

Name

Date

1 year

2 years
% p.a.

3 years
% p.a.

5 years
% p.a.

Since Inception
% p.a.

Australian Share Fund
28-Feb-2007
17.64 %
17.06 %
19.31 %
14.72 %
16.88 %
BenchMark
28-Feb-2007
23.77 %
23.42 %
25.44 %
16.19 %
14.16 %


Source : Investors Mutual Limited

Maple-Brown Abbott

MBA AET
% Dist'n^Growth*Total"Benchmark**
%

Since Inception 31 Dec 1992 p.a.10.16.316.414.210 Years p.a.11.43.114.513.47 Years p.a.14.22.016.213.74 Years p.a.17.85.223.025.53 Years p.a.21.61.322.925.41 Year25.2-2.922.323.83 Months7.3-2.15.27.31 Monthn/an/a0.01.6
Source: Maple-Brown Abbott




Tyndall Australian Share Portfolio

0.76%​

14.55%
19.87%
22.07%
16.66%
12.79%​

S&P/ASX 200 Accumulation Index

1.63%​

16.33%
23.49%
25.48%
16.13%
13.40%​

Source: Tyndall Retail and Wholesale Investment Services - Tyndall Investment Performance

And that's not picking "absolute return" managers as you're suggesting (whose performance is from a quick perusal of a couple, actually worse) but rather Australian equities funds because thats a more accurate match to the underlying portfolio.

Unfortunately (or perhaps fortunately) the "good Lord" hasn't deemed me worthy to receive divine investment advice. Nor has Elvis contacted me from the Graceland beyond the grave to give me hot commodities tips .

My "faith" is based on actual performance to date, against actual market conditions to date and meeting my investment objective.

Fund distributions are:

Australian
Retail Fund
(cents/unit)%Australian
Wholesale Fund
(cents/unit)%American
Fund
(cents/unit)%
Year to Date5.50005.16%5.50005.18%2.60002.57%
Sep 2006 2.20002.00%2.20002.01%1.10001.09%Dec 2006 3.30003.06%3.30003.07%1.50001.46% Year 05/0617.727817.24%18.743118.09%0.00000.00%
Sep 2005 5.80005.40%5.90005.46%1.10001.09%Dec 2005 2.70002.40%2.80002.47%1.50001.46%Mar 2006 3.50003.17%3.60003.25%0.00000.00%Jun 2006 5.72785.11%6.44315.72%0.00000.00% Year 04/0515.609316.17%14.921515.50%----
Sep 2004 3.26203.23%3.26303.24%----Dec 2004 3.40003.27%3.60003.46%----Mar 2005 4.20003.72%4.50003.98%----Jun 2005 4.74734.37%3.55853.29%---- Year 03/04 9.984210.58%10.060110.66%--Source: Welcome to NavraInvest Limited - Funds Management


The above is fact.

The volatility of the Australian share market has been at historical lows. Fact. For example, see this comment on this by Shane Oliver:

After three relatively calm years it seems share market
volatility has returned. The chart below shows one
measure of volatility, ie, the number of days where share
markets rose or fell by 1% or more over rolling periods of
40 trading days (two months). This is shown for both
Australian shares and an average of the US, Japanese and
European share markets. Over the last 40 trading days
Australian shares have seen 16 days where the market
moved by 1% or more, whereas between 2003 and most of
last year this was running below 5 days in every 40 days.
Similarly there has been a sharp spike in the number of
days where global shares moved by 1% or more.​

Source: Wealth Management Australia - Financial Planning - AMP - AMP
and there are numerous other commentators noting the lack of volatility over the period since the NI fund's inception.

This is a fund whose trading methodology thrives on high volatility. So in market conditions to which the fund is not ideally suited, it has managed to more than deliver against MY investment objective which was to get regular double-digit income returns to offset negatively geared investment property with as low a risk as I could manage. The NavraInvest funds have done that admirably. Could I, with the benefit of 20/20 hindsight have achieved higher returns by parking my money elsewhere? Of course! That's a fact too. But:
1) I don't have a crystal ball
2) to do so, e.g. to put the funds into say the macquarie small companies fund that returned 74% last year for example, would have been a different risk profile
3) I stand by my view that this is a very conservative fund in terms of the underlying assets, which strikes an appropriate balance between having too many shares (with the resulting "di-worsification") and being too concentrated.

Am I now duly excused "Mr 27%"?

N.

 

If you own $600k on a $600k asset, in 10 years the assets is worth $400k in todays dollars... and so the $600k debt is also worth $400k in todays dollars.

The debt will always "devalue" with inflation, but the asset may grow.

 

Yes good point, but the asset must grow to make this whole exercise of any worth.

GSJ

 

I never said that 1% was a good or bad return, all I said (or intended) was that it is silly to whinge about getting only 1%, when it is your choice to be in a fund that aims to return around 10% income and you choose to buy money at 9%. Also, it is NOT a 1% return, as has been stated - the INVESTMENT returns a 10% yield, and INVESTOR'S return is dependant on their own gearing.

That depends on what you do with the income. Income reinvested is effectively the same as growth. Both contribute towards total return on investment. If you are leveraged into an income fund and spend all the income, I agree that this is not good, however that has nothing to do with the INVESTMENT and everything to do with the INVESTOR.

Some would argue that the essense of making a good or logical investment is making the numbers work. Personally I would probably support this point of view.

Again, that depends entirely on what you do with the income. Surplus income provided by leveraging into an income fund may allow you to hold onto a cashflow hungry investment that provides tremendous growth. If the difference between getting that investment is whether you leverage into an income fund, then I would suggest that it makes perfect sense. If you reinvested the surplus income, this could also make sense.

 

And why MUST is grow ?

If holding growth assets with negative cash flow (eg property) of course it must grow else why hold. But postive cashflow asset need not as long as the capital is safe, or within risk profile.

 

Yes, but "Past performance is no guarantee of future results"...

GSJ

 

And neither is faith

 

What you do with the income has 'nothing to do with the investment, and everything to do with the investor'.

GSJ

 

Are you kidding???
The answer is because that is $24k more than you would have if you didnt borrow the $600k.

 

True, but it's an indicator if the investment methodology is logical and repeatable.

All investing is about timing. You're buying something today which you believe will be worth more tomorrow. That belief may be sourced from anything ranging from blind faith or calculated guesswork to detailed macro and micro analysis, but it will always involve some element of forecasting.

There are no guarantees. And I've not said there are. Just my view about what's probable. And I think it's probable that NI will continue to meet my investment needs (as described earlier) for the component of my capital allocated to it.

To turn the question around, what do you look at then to forecast choose your investments?

N.

 

You need to have some of your own funds so if I had $300k cash and then raised a margin loan for the other $300k, the return would still be $72k with a cost of $24k giving you $48k.

The inflation erosion on the $300k is ??? lets say 6% or a loss in value of $18k.

Thus the real return on the $300K is $30k or a return of 10%. Unfortunately you still need to pay tax on the full $48k. Thus at 30% tax your left with about $33k less the $18k inflation gives you a real return of $15k. This is a return after tax of 5% on your $300k.

In my example the after tax return is $44k x 30% = $30800 which is still 6.4% on your equity.

Plus I am still going to get capital growth on the $600k propety base with no tax payable on this amount (yet). This would add the 6% inflation to the return (after tax 4.2%)

Gives a total return after allowances for tax and inflation of 10.6% this compares to the 5% on just your money at 50% margin or a 2.3% return after inflation and tax with no margin.

(72 - 30%( tax) = 50k - 36(inflation)= 14 = 2.3% return)

Further up side is that inflation helps you repay the debt as the real value of the debt is going down at the rate of inflation.

Cheers

 

Well, actually 16k pa net if you pay tax at 30%, or if it was 6k pa, it would be just 4k pa net...with the 600k debt (4/600 X 100 = 0.67%) I think that's a dis-proportionately low income benefit, in the context of that level of debt and the nature of the fund it is invested in.

GSJ

 

Ok, truth be told, I pulled that 27% out of the depths of my somewhat failing memory. So let's do the real maths because I would like nothing less than to engage in hype.

So...

The retail fund has been in existence since 01 May 03, so we know we need to collect data from that date onwards. Now, I know a lot has happened in the market lately, but I'm away and only have accumulation data until 26/02/07. I'll be back at a terminal on Friday, so I can update the calcs then.

Anyway, I'll work with what I've got for now...

S&P/ASX 200 Accumulation Index as at 1/5/03 = 15,704
S&P/ASX 200 Accumulation Index as at 26/2/07 = 37,204

So we're looking at a period that is approx 3.825 years.

37204 = 15704(1+r)^3.825
r = 25.29%

So the market return since inception has been 25.29%.

This is using raw, un-edited, un-manipulated, ASX 200 accumulation data direct from a DataStream terminal. The All Ords are almost exactly the same for the period, so any argument regarding sample size is moot.

Now let's move to the "N" word (as TryHard so aptly put it in another thread ).

Using the NI website calculator (so it's not raw data, but let's assume NI haven't rigged their own figures downwards), it shows for the same period that the total cumulative return has been 86.24%.

Following the same format as earlier:

18624 = 10000(1+r)^3.825
r = 17.65%

So the NI Retail fund's return has been 17.65% in that same period.

Admittedly I was wrong, the fund has only underperformed the market by 7.64% since inception. But as I said, that isn't the end of the world because it's claimed to be an absolute return fund. Sure 17.65% is good compared to long term returns, but we have to compare using the same period. Doing otherwise is just wrong.

Nonetheless, thanks Nigel for sharing why you have faith in the fund. They're certainly valid points and whether the fund does very well or very poorly, at least you know why you have faith in it (that's more than I can say for some of my prior investments ).

 

Just quoting myself now. You could get 4k pa guaranteed by investing just 40k pa in a fixed interest security - unleveraged - earning 10% pa...

GSJ

 

Not without taking substantial credit risk you won't. 10% ain't 10% if the issuer of the debt security goes belly up. e.g. Westpoint

 

The more I see these discussions evolve the more I come to my blinkered conclusion that Navra Invest plays a sensible, conservative part in a balanced portfolio, and is suited to those who might want liquidity without sacrificing reasonable returns (and don't want to learn the share market backwards). The risks being mentioned which relate to NI seem to pale in comparison to the risks of a number of the other investments often suggested as 'better'.

I realise the returns may not always be well in excess of the 10% p.a. 'expectation' as they have been previously, but even with my limited knowledge of the fund and its trading methods, I still don't feel uneasy about leaving dough in there till I can use it for something else.

I find the discussions really interesting, but I'm just not sure how much the typical Mum and Dad investor (like my fine self) can take in, in order to make any better decision. So far I endured the holy fires of hell on another forum when I suggested I'd stay invested in NI because I trusted what Steve Navra presented was accurate, and since I was blasted into damnation 2 years ago I've earned about 20% p.a since (not a figures man so shoot me if I have missed a percent or 2 either way). The dough would otherwise have sat unused in LOC, or in a term deposit losing money if it was already in play and I couldn't put it back in.

Such discussions have given me the incentive to investigate some other managed funds but there's not enough history yet for me to gauge if they are 'better' or not. They certainly don't generate as much discussion as NI !

Not really sure what my point was now. Did I mention I love Angelina Jolie and Jessica Alba ?

 

I don't invest in these myself, but just putting it up for discussion, and you can see my thoughts on another thread. But anyway, how is this different to NFS going belly up?

GSJ