Managed Funds navra vs other managed funds

This is exactly what I use it for - or will be using it (and other churning type funds for). I have no interest whatsoever in using this fund for cap growth - I have direct shares and property (and in the future ETFs) for that. Nor do I have any interest in how Navra compares with an index. As long as it keeps paying me a chunk of cashola every few months I couldn't give a tinker's toss about the unit price.

I believe I mentioned in an earlier post on another thread about how you have to use each tool for the purpose it was designed. I don't believe Navra was ever intended to be a growth fund, so why use it as one?

I will be watching to see if Navra can continue to pay income if they are caught with no cash and the market is ranging below their buy-in prices.

 

Ok...............so if it is agreed that one has holdings in the Navra fund to offest the shortfall of an IP portfolio, what do you guys suggest once the IP's become positive or even neutral.

My intention was to use the Navra fund to pay me passive income, with the inclusion of a few rents from IP's. This is assuming that there are no (or very low) loans held against the Navra holdings or the IP's.

In short, what other suggested funds are there that will/may have a bit more growth than Navra but still pay a good income once someone has got to the stage that they are relying on a fund/s for income?

P.S. Sorry to move this thread in a different direction (if I have)

 

Smartypants

Obviously depends on individual circumstances, but a portfolio of Australian shares paying comparitively high fully franked dividends would be far more tax effective that Navra if income is your goal.
You would also have some prospect for growth, whereas you likely wouldnt with Navra (going by historical performance).
You could also look at putting your cash (assuming you even had cash and it wasnt 100% geared in which case you would probably find your loans were higher than your navra portfolio) onto some debt - decreasing expenses is always more tax effective than extra income!

What an interesting exercise for people to do who are using Navra to fund shortfalls is to do some 10 year forecasts and see whether you would have been better of using the Navra method or simply funding rent shortfalls through a line of credit - particularly those who are on top marginal tax rates. You may be suprised at what you find, especially considering the extra risk you take on using Navra

 

Thanks for the reply Coops.

Please correct if I'm wrong.

Let's say I wanted 50K return on 500K invested (in shares/mgd funds) as part of my passive income.

I could more than likely get this with Navra. Negatives being that I would have to pay tax and my holdings may not have much growth.

Are you saying I could do the same with direct shares (I'm thinking BHP, a big 4 bank etc). Would I not be in the same boat if taking dividends (instead of re-investing). Being fully franked may be more tax effective but would direct shares pay 10%+ AND still have the potential for growth?

Love learning new ideas about shares.

What about index funds or the like? Just wonder if I'd get that 10% plus a bit of growth.

Thanks again

 

No, direct shares will not pay 10% immediately, but they certainly will in the future, eg big four banks, if you bought them 7 years ago at 4.5% yield, they are paying 10% (fully franked!) yield on your purchase price.

Plus, they have doubled in capital value.

Another example:
- I bought QBE shares Nov 2001 at $5.50. They paid 30c of dividends in 2002, ie 5.4% yield.
- 2007 dividends $1.12 (60% franked), share price around $30, so 2007 dividend around 3.7%.
- But based on the original purchase, $1.12 / $5.50 = 20% yield
- at 60% franking, gross yield around 25% on original purchase.
- share price growth of 450% over six years!

 

Hi Rod.

Are your above figures based on taking the dividends as payments or reinvesting?

Once I am in the phase of depending on rents and dividends/distributions as my main/only source of income, it would be ideal to be getting income plus a bit of growth. As long as my initial holdings stayed intact, I would be fairly happy.

E.g, it would be good to invest 500k into XYZ (could be numerous shares/funds) and get 5% growth p/a and only 7% income. 12% overall. So in year 1, I receive 35k income, in year 2 my holdings have grown to 525k so I receive 7% of that and so on and so on. Obviously the dividend/distribution payment would increase each year with the occurring growth.

I'm sure these figures are easily achievable, but being the novice with shares that I am, I just don't know exactly where to look.

I also realise that my above scenario would not happen exactly like this every year, but you get the jist.

 

The figures do not assume dividend reinvestment.
(I use the dividend income to offset my PPOR debt.)

If you did reinvest the dividends, you'd simply accelerate the portfolio growth.

(Some companies provide dividend reinvestment directly, which costs zero in brokerage, and some even give a discount on the weighted average price, eg 2% less than the market price).

Just remember that shares trend at about 12% total growth (share price plus dividends) per year. The share price tends to grow in line with the earnings (ie the price/earnings or "P/E ratio" remains near constant around 14). Also, many companies have a dividend policy that sees their "payout ratio" (% of earnings paid out as dividends) remain fairly constant, eg the big banks have around 70% payout.

What does all that mean? Simply that as earnings grow, so too does the share price, and so too does the dividend. (this keeps the annual dividend yield near constant too).

A 7-8 % growth rate in earnings + dividend + share price can be relied upon over the long term, meaning that shares and dividends will double in value every 8-10 years on average.

A lesson: don't procrastinate for 15 years like I did. I would be worth a couple of million now if I started when I was 20. Think about the year 2025, not Feb 2008.

 

Thanks Rod.

Your info is much appreciated.

 

Back again re the past few posts.

In the theme of the original post on this thread, I am/was also interested in an income fund (like Navra) v's other funds, or in my particular instance, the navra fund v's direct shares.

As I mentioned, I was looking at the mgd fund or the shares providing an income.

Just doing a quick bit of research shows me that on 100k invested, I would get the following returns (N.B approx figures only).

on STW shares (not an individual company I realise, but something, I was thinking of investing in): $2620 in dividend payment.

on BHP shares: $1612 in dividend payment.

on WOW shares: $2386 in dividend payment

on WBC shares: $5000 in dividend payment (thats a bit better)

Maybe I'm looking at the wrong type of shares to base things on, but if Navra was giving me approx 10k per annum (on $100k invested), it seems unwise to invest money elsewhere.

Whilst there may be taxation benefits with the direct shares, I think I would still be better off with the income fund. Also, allowing for growth that the direct shares would have, it would appear to take quite a few years to get up to my 10K in div payments that I would (hopefully) be getting with Navra.

Am not looking for an argument here, just hoping someone can enlighten me a bit more to direct shares v's Navra (or similar)

 

Fair question. Look at it this way.

If income is all that matters, then a bank account will pay you 7% guaranteed.
Why would anyone invest in shares at all, since they only pay 4%?

If you put $10k in the bank, you'll get $700 income each year, but in ten years you'll still have $10k in the bank.

If you put $10k into shares, then you'll get say $400 income in the first year, then $430 income in the second year,... up to say $800 income per year after 10 years - but by then the shares might be worth $20k.

With Navra the bias is towards income, which compromises capital growth, so it's somewhere in between bank and shares.

What price long term capital growth?
What price for the additional risk with shares?

What's more important to you:

If the income is critical for the next couple of years, then Navra will provide cashflow.
If less income can be tolerated, then the capital growth of direct shares or growth MFs will win in the long term.

What's the risk in Navra? More than the bank, that's for sure.
What's the return from Navra? More than the bank, hopefully!

Just thoughts. It's going to depend on your circumstances, not mine.

 

Smartypants
The distribution isnt "magic money", when you get a distribution your unit price drops by that amount.
Example:
You buy 1 unit @ $1.10
Navra does 11c per unit distribution (your 10%)
You take your distribution, Unit price is now $0.99
You pay 30% tax on your 11c = 3.3c, your distribution is now worth 7.7c.
Therefore your NET WORTH (the main thing you care about - forget this whole trading income argument it is rubbish) is now
99c + 7.7c = $1.067. You have effectively lost 3% of your portfolio just by being in navra, with little (I might argue no) chance of capital growth.

Compare that to your shares (will scale a WBC share to $1.10 for even comparison).
buy 1 WBC share @ $1.10 with a 5% fully franked dividend.
Your div is 5.5c, effectively tax free because it is fully franked. So your unit price drops 5.5c to $1.045, but because you have taken your dividend your net worth is $1.045 + 5.5c = $1.10. So alread your NET WORTH is better off by the tax saving of 3.3c.
BUT WAIT! You have a possiblity of capital growth as well.
Dont believe me?
Unit price of Navra on 01-05-2003: $1.00
Unit price of Navra on 25-01-2008: $1.0282
Total Dividends taken: 68.7413c, less tax @ 30%: 0.2062c
Total Net worth (assuming distribution not spent): $1.2344
Net growth after almost 5 years: $0.2344 (~23% total)

WBC share price on 01-05-2003: $16.02
WBC share price on 25-01-08: $26.59
Total Dividends taken: $5.11 fully franked
Net worth (assuming divs not spent): $31.70
Net growth after almost 5 years: $15.68 (~98% total)

Not only that, but your WBC div is now 8.3% of your initial purchase price, fully franked.
Ahh...the benefits of hindsight!

 

Oh yeah, also most people would have been paying an average of around 7c a year margin loan/loc interest on their navra holding over the last 5 years, leaving the navra holding a negative equity situation.
This during one of the most major bull markets in Australian history.

 

Thanks again Rod & Coops.

All valid points you have made, especially regarding the taxation and growth side of things.

At present, most of my share holdings are held with Navra but I am looking at getting a bit of diversification and growth (over the years), so when the timing is right I might have to rethink my holding ratio and get into some direct shares, which dividends will be reinvested into until I need the income.

Thanks again, it's great to get other peoples opinions

 

If you are after income
why not go for SLF - its the index of the property trusts
great yields - currently 8.6% according to comsec
its dropped 25% in 3mths
It may have a bit more to drop but long term it looks good
If it drops any more from sub prime fears - its dividends will be 10%
but the dividends grow every year
and the share price should grow every year too - significantly
Being an index its diversified

 

Or go CNP and get 48%!!

 

Very good point.

Remember distributions from property trusts come two times a year, end of each half year.
Navra distribution is monthly.

Depends how you manage cashflow.

Maybe you need to have cash on hand for a year's expenses, after all the ATO pays once a year!

 

actually i think slf distributes quarterly

 

Yep - SLF is quarterly

 

Cool. Happy to be corrected.