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Navra unit prices

Discussion in 'Managed Funds & Index Funds' started by pthm, 15th Jun, 2006.

  1. pthm

    pthm Well-Known Member

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    Was away for most of May. Just checked Navra unit prices in all 3 funds - as we have $ in all three, and noticed that all were down a lot (yes, the market also went down!). It appears that all capital amounts are in the negative zone. Wonder if there will be a distribution for June 2006 quarter? What do you think?
     
  2. gazza

    gazza Well-Known Member

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    There will definitely be a distribution this quarter (it's not related to the unit price performance). when last I spoke to Steve, it was already going to be at least 2.7% (I think).
     
  3. pthm

    pthm Well-Known Member

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    Thanks, gazza for the reply. Good! - if there will be a distribution for the June quarter - need for servicing the loans on the IPs. :)
     
  4. Alan

    Alan Well-Known Member

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    Sim gave a good reply to this here:

    http://www.invested.com.au/forums/62/us-fund-847/index3.html#post6978

    Exactly, don't get Unit Price mixed up with Distributions too much.

    Unless the Fund wants to start paying tax they have to distribute all their profits at the end of the year and that is at least from trading profits, dividends and interest on cash held. Therefore, the chance of ever getting no distribution would appear highly unlikely.

    The Unit Price could theoretically drop considerably and yet a reasonable Distribution could still eventuate. That's one of the reasons why I like it. :)

    A drop in Unit Price is really more of a concern if you reach a point where you want/need to sell them. Then, you may have an issue depending on the prevailing situation.
     
  5. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Or you can look at it as a great opportunity to buy into the funds (like me!). Hopefully the money I'm waiting for gets to me before the price goes up.

    Mark
     
  6. artgul

    artgul Well-Known Member

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    What's the position of those capitalising interest from margin lending?

    Thanks,
    artgul
     
  7. Alan

    Alan Well-Known Member

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    That's a good point.

    If you capitalise your interest and you want to keep your Gearing Ratio the same, you either need some ongoing Unit Price Growth or you need to reduce your loan by contributing extra funds.

    A lower Unit Price would certainly impact on this situation.
     
  8. MJK

    MJK Well-Known Member

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    Stating the obvious....you could reinvest your dividend into reducing the debt or into more units in difficult times.

    MJK:D
     
  9. gazza

    gazza Well-Known Member

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    Alternatively use the dividend to reduce the margin loan. This is a more effective way of reducing the LVR than buying more units
     
  10. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Just to be picky ... I would like to point out that distributions from managed funds that are either reinvested, or paid as cash into the margin loan account, do nothing more than maintain the LVR levels before the distribution was made - they do NOT reduce the LVR.

    Because the fund drops in value (and hence unit price) by the amount of the distribution, if you take your distributions as cash - then your LVR is increasing as a result !! This is a point in time issue only - you would expect from one distribution period to the next, that the unit price has increased as a result of income into the fund (plus maybe capital growth) ... so assuming the capital value of the investment isn't falling, then you would typically be no worse off at the end of the distribution period that you would have been at the beginning (unit price shouldn't drop by more than the increase in unit price over the distribution period - assuming zero capital growth/loss).

    However, in a falling market - there is a triple whammy for people borrowing on margin and also capitalising interest.

    1. falling market means falling capital value, which means falling unit prices, which increases LVR
    2. distribution at end of period reduces unit price, which may also lead to increased LVR if taken as a cash payment and not paid as reinvestment or paid into margin loan
    3. capitalised interest increases LVR

    ... so if you are capitalising interest in a falling market and taking distributions as cash payments ... you should keep a VERY close eye on your LVR to ensure you don't get into a margin call situation.

    From what I've seen, most margin lenders insist that distributions are either reinvested, or paid into the margin loan account - so this isn't quite so much of an issue ... but it still pays to be careful.
     
  11. MJK

    MJK Well-Known Member

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    Very good points.

    Interesting about lenders insisting reinvestment or pay downs. My lender to date has placed no restrictions such as these. It would make it a complicated vehicle to use if you where at the stage of living of distributions I reckon.

    MJK:D
     
  12. artgul

    artgul Well-Known Member

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    It'd be interesting to check how Navra Funds perform in a falling market. Specially if one is planning on living of equity later on and these type of strategies are required.

    artgul
     
  13. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Sim,

    That's me! ;)

    I'm capitalising my interest but taking my distributions in cash in a falling market. Looking forward to some growth in that unit price again. Looks like we might have found "a" bottom but time will tell.

    I'd hazard a guess that I'm not the only one in this position. Steve said it is OK in an earlier post because the 5% off CG retained in the fund each year above the distributed income pretty much offsets the capitalised interest. I hope it pans out that way or my LVR is going backwards. Its a good thing I've got a big buffer...

    Cheers,
    Michael.
     
  14. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Not in a falling (or sideways) market ... which was kind of my point.

    It's all about the buffer!!

    If your buffer is too small - you may not have enough headroom to avoid a margin call.

    If your buffer is too big - you are not getting the most benefit from gearing in a strong market.

    Managing your buffer size is the most critical part of the whole exercise ... and it (unfortunately) does require a bit of crystal-ball gazing to a degree if you want to make the most of things.

    Of course, if you have other liquid investments that you can draw on to rebalance your LVR if things get too close for comfort ... then it is easier to manage ... but that is similar to running a lower LVR on your margin loan - or holding cash in an offset account - or an undrawn LOC ... all of which don't return much in a rising market - but which can really come in handy when the market is falling (or overly volatile).
     
  15. Bob

    Bob Well-Known Member

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    re-investing the dividends

    Sim,

    What sort of LVR percentage do you personally feel comfortable with? I follow my own 50percent rule. I capitalise the interest, re-invest 50percent of the dividends and (try) to maintain a 50 LVR. It is tempting in a bull market to increase the LVR to 55 or 60percent.

    Bob
     
  16. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I run my LVR no higher than 10% below my current max LVR.

    Since I have some fund investments that offer less than 70% LVR, my overall max LVR is somewhere around 68.5% ... so the maximum I aim for is 58.5% LVR ... and I adjust this as my investments change in composition.

    I do "gear up" when the market is strong ... meaning that as my investments increase in value, hence my LVR falls, I increase my loan/investments so that my LVR gets back up to my personal max LVR. If I have additional cash to invest, I'll gear it up too.

    HOWEVER ... I do NOT capitalise interest (I have enough cashflow from other sources to pay it) ... and I have my distributions paid into my margin loan.

    So the only impact on my LVR is changes in market conditions ... fewer variables makes it easier to manage (in my opinion).

    If cashflow gets short - I have no problems with drawing cash from my margin account at times to pay the interest costs (occasionally capitalising interest) ... but it is the exception rather than the norm - and I keep a close eye on things to ensure my LVRs aren't going to be affected too much.

    This strategy works for me (at the moment), because I do have good levels of surplus income to cover the interest costs. I also have enough flexibility to manage the higher LVRs overall ... so I'm comfortable with it.

    In general I'd suggest most people, especially those on lower incomes or without other investments for flexibility, might be better off with a lower LVR ... something like 50% as Steve suggests.

    Over time, I do intend to lower my personal max LVR - especially as I begin to rely on those investment returns for living.
     
  17. MrDarcy

    MrDarcy Well-Known Member

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    You have yourself a clear strategy, that's worth a lot. Just curious, do you still have PPOR debt?
     
  18. Bob

    Bob Well-Known Member

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    Margin Loans


    I love to plan!!. What would your strategy be then??? 50percent LVR and then capitalise, taking all the distributions for lifestyle? Perhaps adding to the margin loan if it gets too high from a LOC?

    Bob
     
  19. gazza

    gazza Well-Known Member

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    Like Michael, I capitalise my interest (started doing it on the beginning of the year) and take my distributions as cash. I have been agressive with my LVR , it started at 60%, currently a tad over 63%, so I am certainly one of those Sim referred to ie I have to keep a close eye on my LVR especially in a falling market and doubly so around distribution times. I have built up a substantial cash buffer over the last year or so as we had other plans. Given those plans are now on hold, I will be looking at using some cash to reduce my LVR. Over time I would like it back in the 50-55% range.
     
  20. gazza

    gazza Well-Known Member

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    Sim

    Not sure if it's quite true saying that if you were to use the distributions to pay down your margin loan, it does nothing but maintain your LVR. But I might be wrong (my sums could be a bit dodgy and simplistic :) )

    For example:

    I own 1000000 units at a unit price of $1 ie total value $1 000 000
    I have a margin loan of $500000 ie LVR 50%

    The end of quarter distribution is 3% ie $30000

    My unit holding value is now 970K
    I reduce my margin loan by the 30K ie it is now 470K
    My LVR is now 48.45%

    Is that right or have a made a mistake somewhere?

    cheers
    Gazza