Managed Funds Navra NO LONGER an Income Fund ?

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

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  1. TryHard

    TryHard Well-Known Member

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    Great point HandyAndy - its a good example of fear of risk or insufficient education causing someone to not act for their own good.

    That's why I am still always pro-Navra, because he made us see the light and we are WAAAAYYYYY better off because of it (like I can retire 5-10 years earlier better off, so I appreciate what he taught us !)

    Having said that, even from my dummy view of things, now doesn't appear the time to get too adventurous, or to blindly follow any approach, from what I can see.

    So this thread and others have cautioned me to conservatively balance what we might try to do next. Its all good - I get smarter every day (starting from a low base can do that for ya!) :D Thanks InvestEd :p
     
  2. TPI

    TPI Well-Known Member

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    Maybe I'll pose a different question, what do people think about using borrowed funds, let's say you were able to get 100% leverage, and investing this into a high-income fund, but also capitalising the interest on the loan - which is something that was promoted in a recent thread?

    GSJ
     
  3. Simon Hampel

    Simon Hampel Founder Staff Member

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    Depends on the income return (ie margin above interest rate costs) and what I intended to do with that income.

    I do use 100% effective leverage (equity + margin loan), and I do capitalise interest, but my costs are well less than 8% and my income has been well over 15%.

    Again, this is not a stand-alone investment ... I doubt I would take this approach on its own ... I have coupled this with growth investments, and I use the surplus income from the income fund to help pay the costs of those other investments too.
     
  4. gazza

    gazza Well-Known Member

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    I am doing something very similar to Sim and I agree with Handyandy in that ,from my perspective, the income fund , whether it's NI or anything else, needs to return at least 15% to keep this as a viable structure. That income fund has to also protect my capital base (although modest CG would be nice :) ). At this point in time NI is achieving both of those aims and thus remains a big part (but not the only part) of my investment strategy. Like any investment strategy, NI's performance is constantly under review, as any part of your strategy should be but at the moment it is doing for me what it is designed to do and doing it pretty well.
     
  5. Takestock

    Takestock Well-Known Member

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    Well, I'll just have to assume that this means that you do understand what I said in the previous post...I don't think I'm going to get a yes :( (not that you agree with it, just that you see where a lot of people here are coming from)

    Steve
     
  6. TPI

    TPI Well-Known Member

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    I understand what you are saying, and of course it makes sense, but this little to do with the point I was trying to make. I think I've put forward my POV enough, if people disagree, or don't get it so be it.

    GSJ
     
  7. TPI

    TPI Well-Known Member

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    Sim and others,

    I understand about context, people's individual finances, LVR's etc...

    But, putting this aside and what you do with the income, ie, reinvest, pay down the debt, or service other loans...

    And, looking at the investment approach on its own and from the beginning, without individual biases...which is the way I was trying to get my point across...

    Say you just started this investment, and what if the income was not 15% but 10% in the first year, and your interest was not 8%, but 9%, so 1% net pa? Of course, you can put your own cash into this deal to make it safer and look better. But stand alone, does it look attractive?

    Further, say you planned on capitalising interest, ie, as mentioned in the deleted thread, using 'the power of compound interest' - in reverse!, ie, a compounding debt - how does this strategy look now?

    Well, if this was a high income fund, and in the second year, the income was still just 10% - and assume no capital growth, then you're really falling behind the 8-ball on this investment. For it to be sustainable, the % income return will need to be even higher in the second year. Further, If capital growth doesn't occur - and it doesn't have to for the income fund to achieve it's 'objectives'; which would be mainly to provide cash flow, then you are even more stuffed. Even more, if the capital base declines, which it will anyway due to inflation, then the % incomes required would very quickly become unsustainable.

    Of course, you don't have to capitalise interest, you can pay it and still net 1% pa in the second year, and ever year after. But again, this leveraged 'high income' investment (I am not just referring to NI, but any high income fund, used in this way) approach, will become harder to justify if the capital value does not rise at the very least in line with inflation, but preferably with at least moderate capital growth. If the capital value declines, then this is a woeful strategy.

    Again, I appreciate that you can put cash into this deal, change LVR, and not capitalise interest, but stand alone, it is a recipe for disaster - and just because you manipulate the other numbers or the finances doesn't make it a sound investment.

    Capital growth is essential.

    GSJ
     
  8. TwoDogs

    TwoDogs Well-Known Member

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    Hi GSJ,

    So, if you had the choice of one of two capital safe investments:

    1. 10% growth pa, no income

    or

    2. 100% income, no growth

    Would you only take option 1 because it has the growth ?

    At what point would you take the income (no growth), fund or never ?
     
  9. Simon Hampel

    Simon Hampel Founder Staff Member

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    Okay - the example you present is quite absurd in my opinion.

    So we aren't allowed to pay off any interest - we have to capitalise it, we have to take all the income and use it for something else completely (eg living expenses), we have 1% margin between our income and our costs.

    I give you about 6 months before you'd go broke ... if you are lucky to last that long.

    If you capitalise interest, you need to either have growth or you need to add cash to the system to keep yourself afloat - even if you start with a very low LVR, you will eventually run out of money if you capitalise interest with no growth and no income used to fund the costs.

    This is what really frustrates me about your continued fixation on such arbitrary numbers ... IT DOESN'T WORK using the numbers and strategy you propose ... and nobody is saying it will.

    I certainly wouldn't be investing like that.

    So what was your point again ?
     
  10. iiinvestor

    iiinvestor Well-Known Member

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    10% returns with a 9% borrowing at 100% gearing in a fund such as NI is way too risky. Like GSJ said earlier: you need a $600k exposure to gain $6k before tax, which is about $4200 after tax. So your capital only needs to drop by 0.7% to make an overall loss. If it drops by say 5%, which there is probably a reasonable expectation, then I hate to wonder how long it would take to make that back; maybe 8-12 years (+ the opportunity costs).

    Of course this is referring to a fund that is doing 10% with 9% interest and 100% borrowing. And of course this isn't the NI funds, well not the Aust ones anyway. Although it is the target.
     
  11. Takestock

    Takestock Well-Known Member

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    And say that inflation was 6.7% and say that Uganda's economy was growing at a rate of 28.55% and say that you had a large medical bill to pay and say that..good grief...:confused:

    Steve
     
    Last edited by a moderator: 23rd Mar, 2007
  12. TPI

    TPI Well-Known Member

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    Sim, you're getting close, but I don't think it is absurd, it is very possible - did you not follow the deleted thread - now that was absurd, I had exactly the same points there (applied in a different way), and people seemed to agree with me, or at least, not disagree...or maybe just had no idea...

    Is it absurd to invest in a high income fund and get a return in one year of 10% in income? (Some funds have this has their 'objective')

    Is it absurd to invest in a high income fund that doesn't grow in capital value? (Well they don't have to, they are income funds and aim to provide cashflow)

    Is it absurd for the value of your money to decrease due to inflation? (No, inflation exists)

    Is it absurd to be effectively 100% leveraged? (No, it's legal, people do it)

    Is it absurd to have an interest on borrowed funds used to invest in share funds at rates of 9%? (I don't think so)

    Is it absurd to capitalise interest? (No, it's legal, and people do it)

    So what about cashflow...wherever it comes from, net income, other income streams, or say I get a 100K inheritance in cash and then use this cash to pay down the loan on the above 'absurd' scenario - does that mean it is now a really good investment???

    Steve, your comments add absolutely nothing to an intelligent debate, and clearly show you are not following - and I certainly don't take time to post, just to get crap like that in reply.

    iiinvestor, phew, at least one person here has some idea of what I am trying to convey - feel like I'm talking to a brick wall.

    There are clearly two sides to this investing coin, and a few here are only seeing one side or only choose to see one side, and there is a strong, but perhaps unintended bias here. Maybe it is harder if you already have money invested this way, as many here do, as your emotions and pride may stand in the way of reason. Then you get the 'frustration' and the 'I can't be bothered' replies...It may be embarassing even...unless you can delete posts or threads...

    The basic gist of my arguments could probably be found in simple retail books on finance like those of Whittaker or Clitheroe, it is a basic financial logic and sense, that is missing in the contexts of the 'hype' of so called 'creative financing' or 'financial engineering'.

    GSJ
     
  13. Takestock

    Takestock Well-Known Member

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    GSJ,

    My point was that you can keep putting so many conditions on the situation you want to examine that it really becomes so limiting as to be absurd. My comment was a bit tongue-in-cheek and my apologies if it was not seen in that light.

    I do appreciate that there is always a different view to examine, however I thought it had been pretty well discussed to death. But I see that you have a definite and very specific situation in mind, but I've given my reasons why I don't think it is realistic. I think you could list a set of specific conditions which taken in isolation would preclude just about any investment. I hope you find the answer you are looking for. :)

    Steve
     
  14. TPI

    TPI Well-Known Member

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    Hi Steve, no problems, we will have agree to disagree on this one.

    Interestingly, this is post 113 I think on this thread, the second highest in this forum, the highest I can find is 116 replies!

    GSJ
     
  15. Takestock

    Takestock Well-Known Member

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    Fair Enough. Interestingly, I was just about to ask Sim if this thread has had the most views of any thread in InvesEd so far. People obviously are interested.

    Steve
     
  16. Simon Hampel

    Simon Hampel Founder Staff Member

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    GSJ ... of course none of the examples you give are absurd in isolation ... it's absurd when you put it together into the scenario you mentioned a couple of posts back ... that investment strategy simply won't work.

    But I'm still not quite sure why you are so focussed on the 9%/10% scenario.

    I deal with facts and what-is. I don't get caught up in the what-ifs. I have a goal and a plan (which includes contingencies) - and if my investments are no longer able to help me meet those goals, they will be removed from my plan and replaced with something more appropriate.
     
  17. TPI

    TPI Well-Known Member

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    This is the same 'investment strategy' you are using Sim, but yes, of course you have contingencies, and you are also praying (because that is really all you can do here) that the fund manager makes enough income to give you a surplus over your interest cost. But, the fund manager has a big advantage, particularly in this NI fund, where the objective appears to be 10% income. So if they just did that, well you can't say they are not doing what they told you they would. Further, it is an income fund, so capital growth should not be your expectation...And, the more you leverage, the more funds they have and the more money they would make...Why wouldn't they promote this kind of strategy?

    9%/10% was just for illustration.

    GSJ
     
  18. Simon Hampel

    Simon Hampel Founder Staff Member

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    I'm not sure what your point is ? I also pray that my growth funds don't do -20% like they have at times in the past. While they do +40% at the moment, I'm making hay.
     
  19. seaview

    seaview Well-Known Member

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    Gosh guys,

    It seemed such a harmless question that I asked to start this thread ...and after all these interesting comments I still don't think it has really been answered.
    i.e. Has NI lately been sacrificing income to increase the growth component. Yes, I know all income must be distributed etc, but I suspect they still have some discretion when deciding how much to sell down at the end of each quarter, and they can thereby control how much (undistributed income) they keep as capital growth. I am hoping I am wrong about this, please do enlighten me.

    I also stand by original idea that it is hard for an income fund to be much of a growth fund, but growth funds can be found elsewhere to meet that need. (this is what we use, like many others; but like many others it is hard to find a good income fund apart from Navra). The special and unique feature about NI is that it is (or was) a great income fund. I am concerned that it may stray away from that purpose if it keeps trying to obtain growth at the cost of income.

    Only one more post to break the record apparently, so lets go for it.

    Cheers
    Seaview

    PS. By the way I for one do not think Peter Spann is any bigger a guru than Steve or anyone else. Frankly I find it disappointing that so many of these obviously big brained people seem so focussed on their own views that they miss out on the brilliant ideas offered by their peers. I think we, as basic investors, are in a better position as we can pick and choose the best from each guru whilst feeling free to reject some of their ideas (like those Macquarie Funds Spann is pushing and Steve's tree change/grape escape thingy which is not my cup of tea):)
     
  20. Simon Hampel

    Simon Hampel Founder Staff Member

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    I don't think any of us could answer that. The best you could do is ask NavraInvest directly.

    Given the only marketing done for the fund states the goals of income, income, and more income, I see no evidence that there is a change in focus ?

    I have no idea why they would change that focus at all when the fund is exceeding it's goals and growing at the rate it is - simply doesn't make sense.
     
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