Managed Funds Navra Warrants

Thanks, that's good enough for me !

 

I have been trying to get my head around what could happen with Navra warrants in a very bad market.
What degree of market collapse / company collapse would it take to trigger an "extraordinary event" as described in PDS?
If such an event triggers an early reset, are you not in effect facing a margin call at the worst time possible, and must you then decide whether to pay a lot of cash to readjust LVR, or LOSE ALL YOUR INITIAL CAPITAL.

I realize we should save a buffer to cover the interest accrued, but what about the extra shortfall which a big correction would require? How would that situation be any different to a normal margin call?

Isn't the whole point of the warrant to avoid nasty margin calls at worst possible times ?
At least with a margin call they only sell down the minimum required to adjust the LVR. Is the warrant the same, i.e. will they just sell down the minimum required if you run out of cash, or in a big market collapse would you have to walk away and LOSE ALL YOUR CAPITAL?

This possibility is very troubling, and I wonder if people are assuming that an LVR of 55% in a warrant is somehow safer than an LVR of 55% in a margin loan.? How could that be if a market meltdown still exposes you to margin calls.

I had initially thought my capital would be protected in a warrant, but according to the PDS it is not.
I hope I am wrong about all this.
If not, one may be better to use a margin loan instead of a warrant, if it gives you more control and flexibility in a crisis event.
Or one could reduce gearing to about 30% LVR, perhaps in either product.
I used to think a 30% LVR was ridiculously conservative, but not anymore, since the latest correction and the ongoing bearmarket/recession projections.

 

Isn't that the point of the PUT?

Confused

 

Not as confused as me. It is a while since I read PDS, but I do recall being unsure about the PUT thingy.
Could you please take one moment to explain how the put works - I assume you are saying it will protect my initial capital so I do not have to lose it if I do not want to renew the warrant if reset cost is too high in a down market?
Thanks
Seaview

 

Seaview

This is my limited understanding.

Lets say you invest 100K at 55%LVR ie you have a loan of 55K. Worst case scenario, the market crashes totally ie at the reset date your holdings are worth zero. Normally you would still owe 55K (on top of your capital loss of 45K) but the nature of the loan ie non recourse and I assume the put option, means you can walk away from the loan.

Bottom line, I don't think your capital is protected, more than you don't have to pay the loan back.

Happy to be proved wrong on this.

Gazza

 

Thanks Gazza,
This is what worries me. I still hope I am wrong.
If my initial funds were worth zero at reset, then hey, I would not mind walking away.
But if they were worth say, 30k then I would not like walking away.
And for this product to really protect my capital, surely I should be able to get my initial 50k back at reset.
The Macquarie capital protected products seem to work that way, although you pay a truck load of interest along the way etc, so I have never pursued them. Also the Macquarie PDS is almost as thick as I am in regards to all this.


Cheers
Seaview

 

Seaview

I think they are working in a similiar way. The difference is that with the Mac loan you are borrowing 100%, all of that is protected as long as you remain invested for a fixed term, 6 years in the products I have invested in. If you leave before, there are huge break costs (I know that from experience )

With the warrants you can only borrow a max of 55% so you have to invest 45% from loc or elsewhere and unfortunately there is no protection for that slice of the investment.

Gazza

 

Hi guys,

Don't forget Perpetual Protected Investments series 3 is now out...
Structured Products - PPI 3

Cheaper than Macquarie.

Cheers,

Dan

PS Before making an investment decision speak to your FPA registered Financial Planner.

 

Thanks Gazza,

If my capital is not really protected with the Navra warrant, then my risk tolerance would only allow an LVR of about 30% to 40%, instead of the max of 55%.

And on reflection, I suspect a margin loan would suit me better.

It has several benefits over the warrant for me: I would not have to reset LVRs, or prepay interest, fees etc,

Also, if I use St George Margin Loans at 30% LVR, that would allow a huge fall in the market before I would have to pay anything (up to 85% LVR before all the buffer is used up, which is far more than the warrants maximum of 55% at reset).

So really a margin loan with a conservative LVR would give me more protection and flexibility than the warrants - especially since an "extraordinary event" could trigger a reset at the worst possible time anyway. I would rather take my chances with a lower LVR and a structure that I am familiar with: a margin loan with one of the bigger banks.

Of course, this is not everyones cup of tea, but I have a lot of $ invested in the Navra wholesale fund, and am more convinced than ever that it is not worth changing. Instead, I will keep working on reducing my LVR.

Cheers
Seaview

 

Hi Seaview,

You really should call me . . .

 

Seaview - how did you go ? Did conversations with Steve change your mind ?

 

I haven't heard from seaview????

 

We decided to stay with the wholesale fund. It suits our needs better than warrants at the moment. So we did not feel the need to take up Steves kind offer.
Cheers

 

Hi Here_To_Learn,

Can you advise any more on the processes for the warrants, maybe even the "borrowing fees" on reset dates etc?

 

We have been WIPED OUT thanks to the "safe" warrants. We are no longer invested in the fund.