Managed Funds Post distribution prices?

Can anyone tell me what historically happens to the Navra unit price post distribution?

Thanks,

 

The NavraInvest web site allows download of full history of daily unit prices, load this into a spreadsheet and have a look at what happened at the end and start of previous quarters. Makes for pretty charts too.

 

Seems to me that the unit price appears to drop by exactly the amount of the distribution.

So regardless of buying pre or post will end up with the same amount invested.

But to buy pre means some income is realised and a tax liability is created. It might suit my situation to buy post.

Comment?

Cheers,

 

Analysis

I have tried to analyse what happens to the Navra unit price post distribution because I was about to invest into Navra fund myself and wanted to know whether I should hurry and make an investment before September 30 (end of the quarter) or immediately after the distribution.

As Sim has mentioned earlier in the thread, I have offered him to post my analysis when I wasn’t yet a member of the forum.

I have submitted my application to invest into the Navra fund today (which indicates to what conclusion I have arrived in my analysis ) and thought that I will be able to post myself in a few days as NavraInvest client, but Sim has kindly organised for me to join the forum today.

So here is what I’ve come up with.

Firstly, two important excerpts from the PDS:

“Distributions are not pro-rated for investors who were not unit holders for the whole quarter. Therefore investors who subscribe for units just before a quarter end will receive the full distribution for that quarter.”

“Immediately after an income distribution the net asset values of the Funds falls by the same amounts as the distributions. If you invest just prior to the distribution, the payment is a return on your investment. If you invest just after the distribution the unit price is correspondingly lower.”

My assumptions:

- Unit price before distribution is higher
- Unit price drops immediately after the distribution
- Record distribution is expected at the end of the month (I have based the calculations on 6% although it may be more) according to Steve Navra post http://www.invested.com.au/forums/showpost.php?p=1258&postcount=4
- Investment amount - $10,000
- Calculations are done based on Application price (although I have read in PDS that some calculations are done according to Redemption price)

I have downloaded a history of Unit Prices for period 09/09/2003 – 21/09/2005 and highlighted Unit Prices for last day of each quarter and the next day:


(Date) (Application Price) (Redemption Price) (Price Drop % based on Application Price)

30/09/2003 1.0421 1.0389
01/10/2003 1.007 1.004 3.37%
31/12/2003 1.0172 1.0142
02/01/2004 0.9873 0.9843 2.94%
31/03/2004 1.0236 1.0206
01/04/2004 1.0086 1.0056 1.47%
30/06/2004 1.0286 1.0256
01/07/2004 1.0136 1.0106 1.46%
30/09/2004 1.0728 1.0696
01/10/2004 1.0369 1.0337 3.35%
31/12/2004 1.1583 1.1549
04/01/2005 1.1262 1.1228 2.77%
31/03/2005 1.1314 1.128
01/04/2005 1.0967 1.0935 3.07%
30/06/2005 1.1241 1.1207
01/07/2005 1.0729 1.0697 4.55%

Average Price Drop: 2.87%

Unit price drops immediately after Distribution in a range of 1.47% to 4.55%
Unit Price drop average = 2.87%

Test Cases for Investment amount = $10,000

Investment $10,000.00
Potential Distribution (%) 6.00%
Potential Distribution ($) $600.00
Current Unit price (22/09/05) 1.1645
Unit price after distribution (2.87% drop) 1.1311

1) Investing AFTER distribution:

Units bought before distribution 8,587.38 = 10,000 / 1.1645
Units bought after distribution 8,841.24 = 10,000 / 1.1311
Extra units bought after distribution 253.86

2) Investing BEFORE distribution:

Extra units bought with the distributed money 530.47 = 600.00 / 1.1311

My conclusion – providing the expected distribution is greater that potential drop in unit price (remember – maximum 4.55% since 30/09/2003) it is be better to invest before the Distribution, i.e. in the next few days.

Any comments will be highly appreciated.

 

I have just sent in a top up for my Navra, should be in time to get this quarter's return. I will use the proceeds to reduce non-deducable PPOR debt, but as the entire investment is borrowed, this is part of my non-deductable to deductable transfer plan. eg Invest $10k, few days later its worth $9.5k (at least I hope ). I owe $10k deducable, but my PPOR debt has just reduced by $500 (pre tax of course). The borrowed funds are from LOC off PPOR so $10.5k has shifted.

Not that deductions are the main factor, not at all. I hestitated to top up not becuase near end of quarter with the distribution reducing my invested capital value, but because the market is quite high right now, and I normally try to time fund purchases when it is low - think of this as dollar cost trading of a dollar cost trading fund

 

Hi Maverick

My maths co-processor is a bit fried atm from financial ratio analysis...but 2 comments:

1) what about the buy-sell spread? 5 basis pts isn't it?
2) aren't you converting capital into income (and thereby creating a potential tax liability this year) by investing just before the distribution date... wouldn't it make sense to wait until after the distribution date...

Just shooting from the hip here...

N.

 

In addition I think I understand that you are comparing a potential 6% distribution with an average fall of 2.87%.

We can see that the falls almost exactly mirror the distributions over the limited history of the fund.

So surely you should be comparing a 6% distribution with a 6% unit price fall?

In this case the real difference (to me anyway) is the taxable income generated which I need to pay tax on - even though it has been reinvested.

I think it is a no brainer for me to wait until post distribution and buy units at a 6% discount with no tax owing.

Does this logic make sense? I am no expert and would welcome feedback.

Thanks,

 

As an aside, while you can download the daily Unit Price from NavraInvest, I'd also like to be able to view a history of the actual Quarterly Distributions.

If anyone from NavraInvest checks these posts, perhaps they could put this on the 'enhancement list'?

 

Bingo Sim!

Thanks for that.............

 

Hi Everyone,

Interesting thread.

Simon, its funny how when I was reading the thread I thought the exact opposite of you. If money was tight and you needed income to assist with repayments before the next distribution (I assume end of December) buying before the end of the month would give you this helping hand (or a foot in the door)!!

 

Money isn't tight.

 

I actually invested a sizeable amount on the 31st March prior to distribution.It was a mistake.I generated an extra $8500 income on my annual
statement and a capital loss of the corresponding amount which was not able to be offset .Consequently ,I generated an additional $3000 tax charge over
90 days .The advice that I was given was not thorough enough to highlight the negative consequences.Obviously,the compounding effect of the $3000 is lost forever.Don't make the same mistake.Wait the extra days.

Having said all of this I am extremely grateful that I discovered NavraInvest
and have invested in both the company and the fund.Just a bit disappointed
about the above scenario.

 

Hi Everyone,

Yes an interesting post . . . some comments.

By buying pre distribution you achieve the following:
Immediate INCOME
Which is useful for cashflow to fund interest on your borrowings quarterly in advance, serviceability,can reduce non-deductible debt, but most importantly you LOCK IN YOUR GAINS . . . the market is at historical highs so if there is a correction the amount of ditribution is already safely in your back pocket.

By buying after the distribution:
You acquire units at the cheaper price. (The unit price will go down by the amount of the distribution.)

Points to consider:
Buying prior to the distribution with a margin loan locks in DOUBLE the income (Leverage) . . . double the non-deductible debt paid down, or twice the cashflow.

Mainly though the choice of pre or post distribution depends on what you are actually trying to achieve with your structure. (Feel free to call me to discuss if you wish.)

Fund returns at 23th September, 2005

NIASRF 9.01%
ASX200 6.66%
Out Perf 2.35%

Expected distribution for Sept quarter 5%+ (New record )

Regards,
Steve

PS: Just read the above post by 'Funds"

Make sure you you have a pre-payment of interest capability so that you don't generate the extra tax liability in the short term!
This can be easily achieved with the margin loan.

 

Nice refinement MrDarcy.

I'll have a play around with that concept a bit more too when time permits (Little Athletics, Navy Ship Tour etc etc this morning and don't ask about the afternoon! )

The whole approach of 'Rental Reality', 'Dollar Cost Trading' etc are all premised on the 'buy low'(or at reasonable prices) and Sell(or lock in equity) at high prices. Is there a good reason why this shouldn't apply to Unit Prices in a Fund as well?

The Distribution will certainly be a factor here, the buy-sell spreads and the 'cost' of sitting around waiting for a 'better' buying opportunity while you 'could' be making money in the Fund, but it would be interesting to investigate further.

'Dollar cost trading of a dollar cost trading fund'........has a nice ring to it!

Or start a Savings Plan and Dollar Cost Average your Dollar Cost Trading Fund?

 

Funds

The capital loss you refer to (caused by the unit price dropping by the amount of the distribution), is only a paper loss ie. it is not crystallised unless you sell those units. So if you were not intending to sell, the only issue is that you have made money on which you have to pay tax. A good position to be in and as Steve said, that can be offset by prepaying interest. BTW that was I mistake I made ie. not prepaying interest, which meant I had to pay quite a bit of tax because of the fund's good performance last year.

cheers
Gazza

 

Very true.

But if you prefer not to take the income you can buy them at a 5% discount (assuming thats the distribution) so where's the disadvantage?

Cheers,

 

Simon,

It seems you are seeking a fund who's unit prices increase substantially over time, rather than one who's unit prices increase by moderate amounts whilst punching out large quarterly distributions.

If that is the case are you sure a Navrainvest fund is right for you?

 

Oh no - I am happy with this fund - was just trying to fine tune a buying decision Also trying to sound out my logic with others. Don't read too much into why I might be asking questions. I just do!

Thanks everyone