Managed Funds Navra Warrants

Hi Rambada,

This is my understanding of the product so far:

When you invest in the Navra Fund through a warrant you are not buying neither holding units in the fund as such. You hold the Warrant and it in turn holds the units. Your investment is in the warrant that was sold to you at a fixed price. Thus, you can't give units back to ABN AMRO to rebalance the portfolio. Warrant interest can be either paid in advanced or capitalised and all distributions are paid to you as per usual. You could reinvest those funds via purchasing other warrants or simple buying units in the fund under another account number however, these are separate investments to the original warrant.

When you have a warrant, the portion of the loan is protected in the sense that no margin call would be issue if the price of the warrant drops. At the end of the warrant life period, you could chose to walk away without having to paid the loan. However, if you choose to reset the warrant then, you'd be buying a new warrant at the current price. Note that if the market had dropped and/or if you have being capitalising interest, you may have to put more cash in the purchase to keep the LVR at the agreed level.

In my case, I decided not to purchase the warrant and keep my ML. I have no issues in keeping LVR around 50% neither have problems in adding some extra funds if required. I also would have to move from the Whole sale to the Retail Fund. In my case, the warrant offers no real benefits and is not flexible enough. However, it may make sense under other circumstances.

Rgds,
artgul

 

Ok......it would appear we pay a bit more to eliminate Margin Calls but what other advantages does this product have over a straight Margin Loan?

Anyone care to start a list?

* By the way, here is another example, IMHO, where I think NFS would be able to get their message out much quicker and provide better Client feedback by answering a range of ongoing questions on-line. Many of the questions are probably the same anyway.
If there is some ideological/historical/personal/???/whatever barrier from doing it on this Site, why not start a similar facility to this on their website for answering questions about their Products.
If they want to eliminate 'heckling' and control the environment, then make it a Client Only area and each Client can have their own Password. My 2 cents....

 

Now that would be good client relations!!

 

So this would mean at each annual reset date you have to rebalance to 50% LVR. Dependant on if the unit price went up or down, and whether you capitalised or prepaid % (either way % payment is due - for the past year or the forward year).
Therefore at each reset date, you pay the an annual % fee, and plus or minus capital to redress the LVR to 50%?

 

>Therefore at each reset date, you pay the an annual % fee, and plus or minus capital to redress the LVR to 50%?

That's my understanding.!. As you mentioned before, it's like a margin call but, without the call

Rgds,
artgul

 

1- No margin calls
2- At reset time one can walk away (no need to pay the loan). So, if the warrant goes to $0 the most one can lose is the original 50% capital invested plus any interest paid in advanced and fees.

Rgds,
artgul

PS. The veracity of these comments must be checked with Navra.

 

To invest in the Warrants you have to sell your current holdings and buy back in.........is this correct and for both Personal/Margin Lending holdings and SMSF holdings if any?

 

Warrants?

Redwing,

That is my understanding. There are a number of considerations including CGT, and in my case the retail fund has a different fee structure to the wholesale fund. If your ML is manageable it might be better to battle the storm.

Just my opinion

LS

 

If the owner doesn't change then there is no CGT, just a form to fill in I gather.

Navra did advise me that that their 2.2% is only on application, not on reset. (ie 2.2% if bought today, not on June 30 when reset) That may also mean on renewing after expiring in a few years, they were not sure on that point.

 

When I asked Steve about there being a reset date on June 30 each year, he said no there is only one reset date 30 June 2010 (I think). at that point you would need to rebalance your portfolio to 55% LVR which keep mean putting in cash if the unit value has dropped and potentially drawing out some equity if the unit value has risen. i would think at that point the 2.2% would be payable again.

 

So it must be the PDS that's wrong....

From the PDS, the real PDS not the evil ABN online version, part 1 page 3:

"Reset Date 30 June 2008
Reset Date 30 June 2009
Expiry Date 30 June 2010"

Reset dates are 30 June every year until expiry. The rebalancing would be done at EXPIRY, but page 2:

"On each reset date the new interest amount and any borrowing fees will simply be added to the loan amount.....This means you do not have to outlay any further cash payments to service your loan during the investment term"

This conflicts with the quote above and possibly with the advice I was given, time will tell.

 

good point MrDarcy - maybe Steve misunderstood my question but because of the PDS clause you just mentioned, I did specifically ask him about resets each June and the costs thereof.

FWIW my strategy at this stage is to manage my margin loan LVR for as long as possible and avoid switching to the warrants (I don't really want to move the bulk of my units from the wholesale to retail fund and I wouldn't want to pay 2.2% of my loan amount each reset date ). I am however in the fortunate position of having a cash buffer to keep my LVR managable. I already gave my margin lender some unemcumbered units as security. Currently my LVR is around 65% and my plan is to keep is under 70% by reducing the margin loan when necessary from my cash reserves.

 

Margin Loan

Gazza,

I am of the same opinion, I have units in the wholesale fund and do not want to change. Can I ask what your strategy is for next financial year? Are you going to pre-pay in advance and acquire the tax benefit? I am with LE and pre-paid last June and glad I did as it locked in the interest rate. I am thinking of placing some funds into the margin loan, going to suncorp and use the funds I placed into the ML as pre-payment. What do you reckon?

LE

 

LE

I haven't up until now prepaid interest on my margin loan but I know Suncorp had a really low rate if you prepaid your interest last fin year, so it certainly sounds like something worth looking into, if they are offering those rates again (especially given the current interest rate climate and my current rate with Colonial getting close to 10%).

gazza

 

Note that that warrants also offer capital guarantees over the issue price.

Steve mentioned at the cocktail party that a more defensive strategy makes sense in these turbulent times.

As mentioned before... this move has cost me however worth every cent if it means SANF.

 

Funny, Steve also said to a friend of mine that the LVR is not corrected for 3 years. I had seen the PDS clause & queried him, emailed Steve (no reply), and Brisbane advisor. Its certainly not clear. I am going to call ABN Amro today to clarify.
Another thing is % rate - it was also indicated that the % rate is fixed for the 12 month period, but I read the PDS as variable. Will keep you informed of any progress.

 

Just got off the phone from ABN Amro - contact Elizabeth and questions/answers as follows:

LVR & reset date - at each reset date, the LVR does not change. It is only bought back into 50 - 55% balance when the expiry date occurs. I queried the PDS statement as previously bought up but did not get a clear reply.

% rate - this is fixed for 12 months - currently at 8.75%. It is reviewed every reset date. It is prepaid.

Borrowing fee - 2.2% initially only & on any loan increase at each reset date.

Have just hatched more questions so will add later.

 

So invest today and pay 2.2% of the loan as fees and another 2.2% when you reset in 3 months this June. Yeah, like I'm going to do to that ! That makes the annualised rate to June about 17.5%, not just 8.75% + 2.2%=10.95% for the year. I'm not questioning the 2.2% PA , just not for 3 months, ie 2.2% * 4 = 8.8% annualised.

And that's how I read it in the PDS, but not how NFS advised. When I asked NFS over the phone I suggested the above and was advise no, the 2.2% was only on initial application, not on each reset.

Either somebody doesn't know what they are saying, or the facts are kept a little vague, but at the end of the day the PDS does say pay 2.2% on reset and that is what you will be signing.

SANF was mentioned, and I understand that having today just sent BT another $10k for a margin call. But at least I know where my money is going, and every day that goes by what should be a good product from Navra is getting less and less SANF'd

 

Ok.
I spoke to Steve today & ABN Amro & found out the following.

% rate - is fixed for the 12 months. Is adjusted at the reset date based on prevailing % rates

capitalised - % is capitalised from day 1. So by 2010, the LVR will be approx 67%.

Fees - 2% loan fee to Navra & the normal fund entry fee is waived

Put option - this is not set in stone & is added on top of the % rate. The reason it is not quoted is that it varies every day dependent on market conditions but it takes the % rate up to approx 0.6 to 1% above the current margin rate. As an example - based on todays volatility & market conditions it is 1.2cents per unit - but of course that will vary by tommorow.

 

Confirmed today also with Steve that 2.2% is only payable ONCE on application NOT at each reset date.