Managed Funds NavraInvest versus other funds

{Note this thread split from http://www.invested.com.au/forums/showthread.php?t=563 - Sim'}

Hi Michael

Attached for your info is comparison between NI fund and Perpetual Geared Aust Fund. This fund is available for Margin Loans at 70% LVR with a few lenders.The fund has internal gearing about 40-50%.

For the same period in your table Perpetual Geared Fund outperformed XJO by 7% and outperformed NI by 11.3%. Gain for period was 17.3%.

So if you want to convert some capital gains to income - simply sell some units. If you dont actually want income ,dont sell any units. You control how much income you want and when you get it.

I think the underperformance by NI can only be "regained" if the shares NI is holding outperform the XJO. Ask yourself how likely this is.

ps Colonial First State has a similar Geared Aust Share Fund with similar perforamce as Perpetuals and can also be margined to 70%.

 

Cumulative performance of NI versus others ?

Hi Notts

Sorry to butt in

If I understood which fund it is correctly (Perpetual WealthFocus Investments Perpetual's Geared Australian Fund ?) it looks pretty impressive :
1 Mth 4.55%
3 Mth 20.1%
6 Mth 24.17%
1 Yr 41.96%
2 Yr 52.93%

In comparison NI is (if I read the performance reports correctly) :
1 Mth 0.79 %
3 Mth 6.8 %
6 Mth 10.95%
1 Yr 20 % (approx) *
2 Yr 47.35 % (approx) *

(* I got these estimates from http://www.navrainvest.com.au/index.asp?content=fund_perf_retail by subtracting the relevant timeframe from current performance)

Comparing the last 3 month's performance of NI versus another is probably never going to look great, whereas the NI cumulative performance since inception looks pretty good. I took a look at some of the past performance of Perpetual and other options, but on the whole the '5 star' S&P rated funds seemed to be pretty similar annual performance to NI ? (I'm a total newbie at this stuff, so could easily be missing something )

A risk I am concerned about with some other funds is how they respond to a market heading downward ? As (technically) NI can make money through DCT in a declining market (assuming the gains are later realised in a rising market) I'm led to believe it will do much better during that volatility - are some other funds large and diverse enough that they can ride out the volatility maybe ?

Interested to get your thoughts.

Cheers
Carl

 

Hi Notts

You can't fairly compare an internally geared fund vs an ungeared fund. In boom times like now the internally geared fund will always outperform an ungeared fund due to the extra leverage. In a flat or declining market the interest cost will reduce a geared fund's return relative to an ungeared one.

I'm sure the Perpetual fund you mention is a fine one, but your comparison really isn't valid. It's the old oranges and apples point.

Cheers
N.

 

I think I'm understanding better

Thanks for adding that Nigel. Its helping me understand, s-l-o-w-l-y - I mised the point about gearing ... so those rough comparisons I posted above, if I was invested in NI and geared to 50 %, the nett returns received from NI would be a lot higher (and thereby look a lot more attractive against those examples I posted of the Perpertual Fund ? )

That also kind of addresses my question about how any of those funds that are geared funds respond to the market heading downward - once the returns drop below the interest you owe, you could get into negative territory (which I guess would be the same if you were geared in NI and experienced negative returns) ?

As you say its apples and oranges then, and another reason I should stick to Weet Bix

Cheers
Carl

 

I disagree. I don't care if a fund is geared or not. Forgetting about the two funds in question completely. If one fund is returning more than another, then I want to be in the higher returning fund. We are comparing one fund to another, that to me is oranges and oranges.

Your point on an un-geared fund in a declining market may well be correct, but I still believe you CAN compare a geared fund with an un-geared fund. All I care about is the returns, I don't care what the fund does to get those returns.

 

Can I disagree with you disagreeing ? What Nigel says makes sense. You could feasibly gear into the Navra Fund and the returns being compared would be much higher because of the nett returns on the OPM invested. So if you want to compare the 2 x citrus, you need to factor in the gains on the geared funds for both.

I'm not sure what the funds include when they report "gross returns" but I
* think * from my above post, if you had geared to 50% in NavraInvest the same as perpetual, the gross returns to compare would be :

Perpetual
1 Mth 4.55%
3 Mth 20.1%
6 Mth 24.17%
1 Yr 41.96%
2 Yr 52.93%

NavraInvest geared at 50% :
3 Mth 12.8 %
6 Mth 21.x %
1 Yr 40 % (approx)
2 Yr 94.7 % (approx)

If I got that wrong, then I assume you need to deduct the interest cost of the borrowed funds from the Navra figures which would make the NI figures more like :

3 Mth 10.8 %
6 Mth 17.x %
1 Yr 32 % (approx)
2 Yr 78.7 % (approx)

Someone can no doubt pick me up on mathematics and/or logic.
Either way, I think the above is more of an oranges with oranges comparison.

Cheers
Carl

 

Yes, be my guest

Perhaps Nigel can kindly clarify for us, but I was talking about his comment of the fund being INTERNALLY geared, not if We are geared or not.

My comment was based on how the fund worked internally and had nothing to do with how much money we had invested. i.e. Just merely the % return we are getting from a fund. Even if we were talking about if we were geared or not, only the $ value would not be comparible, the % return would still be comparable.

 

Sure tripleH!

The issue here is risk. Risk means, as you've indirectly mentioned, VARIABILITY of returns. Sure we all want to be in the fund with the highest return. But the risk is higher where a fund has borrowed and thus has to pay its interest bill to the bank before it can distribute to you. That is, the potential DOWNSIDE is also higher.

Let's say the market returns 1% gross. Fund A manages 2% and Fund B manages to just meet the index and get a 1% return. Fund A is geared and Fund B isn't. Ignoring management fees, before Fund A can pass through the return to unitholders it has to deduct it's cost of funds (say 3% if it's 50% geared and assuming the Fund's interest rate is BBSY + a small margin). Fund A is thus -1% whereas Fund B, ignoring management fees, can pass through a 1% return.

I guess what I'm trying to say is, gearing is a two-edged sword. Certainly it magnifies your returns but equally it magnifies your losses.

Let's take the scenario again and say the market falls 5%. And each Fund manages to match that return gross. Then we deduct the interest cost and find:

Fund A (geared) net return -8%
Fund B (ungeared) net return -5%

i.e. 3% better (altho nobody's happy! )

Does that clarify my position for you?

I'm not saying internally geared funds are either good or bad, you just need to accept the mathematics and the attendant increased risk profile. Surely a better way (and more tax effective for the individual) is to borrow against your property equity and then use that borrowed money as the base for a margin loan into a managed fund. Certainly this sort of double-gearing has its own risks too, but at least you get a deduction for the interest cost. Talk to your financial adviser to see if you think such an approach might suit you.

Cheers
N.

 

My 20 c,

In the bull run market goes up, in the bear run the market goes down.
I remember performance of my super fund before current bull run.... It was a disaster.
Question is (as Carl said) what performance of this fund might be during the bear run ?.
If you are going to compare funds, you should take under consideration performance during bull and bear run (it means longer period of time).
NOT many funds can make it during "bad" times.

HHH....
To some extent you are correct saying :
"If one fund is returning more than another, then I want to be in the higher returning fund".
It is very difficult to predict (what we should not do) which one will have higher returns and which one will not.
The only problem is that most funds will perform O.K. during the bull run but during the bear run most of them are just a disaster, and the only excuse you will hear from them is "we have got bear market so do not expect a miracle".
If I am not wrong...most of those funds prefer buy and hold strategy (receipt for disaster in many cases!!!).
That is why what this guys are making during the good days they are loosing (most of it) during the bad times.
After all it's something to think about, if you are willing to get the whole picture.

 

In order to compare some 'apples with apples' , can anyone provide a good link to a list of other Managed Funds who:

a) are ungeared
b) are 'income' funds
c) invest in ASX200

What have been some of the comparative performances over the last say 2 years?

 

you could try this www.tradingroom.com.au and click on the link for Direct Access (cheap/no entry fee service for managed funds). This is not a full list, and does not provide solely income funds that invest in the ASX 200. But it is a start.

Trouble is trying to find a fund with those specifics.

I assume most funds that are active will generate a higher than usual income return as profits are realised but that does not necessarily mean they are specific income funds.

Have fun searching

OSS

 

Hi Nigel

Yes it does, but perhaps mine is not clear I fully understand the implications of being geared and un-geared in both bear and bull markets. I also totally agree with what you are saying.

My only point I was trying to make was that assuming one fully understands the implications of being geared or ungeared, as you describe in your post, I see no probelms with comparing the % returns of a geared fund with an un-geared fund. After all, returns are returns, and a part of any return on investment is risk.

 

Comparisons ?

But based on that logic would it not also be valid to compare having invested in Google, OneTel, HIH, Alpacas, Olives or Ostriches ? None of the funds mentioned match the growth in Google, or the losses from OneTel.

I think the risk profile and difference between geared or not is a very important distinction, particularly for newbies to managed funds like myself who appreciate clarity.

Cheers
Carl

 

Yeah but isn't that a bit like asking why your 1976 Datsun won't beat your Ferrari Modena 360 in a drag off from the traffic lights?

(not that I'm comparing NI to a dodgy Datsun...more like a stylish S600 V12 Mercedes )

 

Good Call Nigel

 

Google, HIH, Datsuns.... I think you guys are just having a go at me now

I think the topic is way off what I intended. We were originally just talking about comparing two different managed funds - something that I still don't think is wrong. I don't think the risk profile of managed funds is so different that it makes them uncomparable.

 

Sorry HHH

I certainly wasn't trying to take the mickey! I agree with you that it's appropriate, indeed essential, to compare returns from various managed funds over a reasonable time period. But I just don't accept your position that the risk profile of an internally geared fund is not significantly different from an ungeared one, even if they invest in exactly the same shares.

But perhaps we'll have to agree to disagree.

Cheers
N.

 

I wasn't either - honest ;-) But I'm still of the opinion we were talking apples and oranges, while maybe Google and Datsuns are pineapples and passionfruit. So I'll sit in the agree to disagree camp too ... this was a 'fruitful' discussion for me anyway, I now understand the basic difference between geared and ungeared funds. A bit better off than I was a few days ago ;-)
Cheers
Carl

 

Nigel/Carl

Then we are agreed then! All part of a healthy debate. Thanks for your views.

Dan

 

Managed Fund Calculator

Guys
ASIC have a calculator on the FIDO site that allows you to compare managed funds
i havent used it but would be interested to see if it provides some sensible answers

http://www.fido.asic.gov.au/fido/fi...g+the+managed+fund+fee+estimator?openDocument

Nickm