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Selling out of Managed Funds

Discussion in 'Managed Funds & Index Funds' started by hiflo, 19th Nov, 2007.

  1. hiflo

    hiflo Well-Known Member

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    I need your help in deciding what questions I should consider before selling out of managed funds.

    As some of may you know, I need to withdraw approx $50K from managed funds to purchase property next year. I can withdraw all of $50 K from Navra Australia Retail, but I want to know whether I should sell some of the funds below as well, and the questions I need to ask myself before selling them. I am currently looking at unit prices of Navra to find the right timing. But want to consider selling some of the below as well.

    I have:

    CFS-MIF-Property($1K), Imputation($2K), Global Resources($3K), Geared Shares($5K)

    CFS-FC- Colliers International Property ($4.5K)

    Perpetual- Aus Shares ($1K), Geared Shares ($3K), Platinum International ($5K)

    Challenger Asia $7K

    I know it isn't much money to some of you and tell me to ignore my above holdings but knowing that some of them haven't performed in the last year, especially Colliers International Property and Platinum International, I am thinking that it may be better for me to sell some of them as cost of margin loan may be more than what I am to gain from them.

    Comparing the unit prices, and the performance of the above funds I am especially unhappy with the performances of CFS Property, CFS Imputation, CFS-FC-Colliers International and Platinum International.

    I have lost over 30% in Colliers International (bought $1.80 now $1.30) and about 10% in Platinum International (bought $1.18 now $1.07) and CFS Property and CFS Imputation has been just about even.

    What my gut wants to do is, sell out of
    CFS Property & Imputation (loss will be around $50-$200 total),
    Perpetual Aus Shares (Full capital gains tax need to be paid)
    Perpetual Geared Shares (capital gains discount available)
    Perpetual Platinum International (loss will be around $500)

    and keep CFS Global Resource, CFS Geared Shares, Challenger Asia as they have performed reasonably well.

    My gut is reluctant to get out of Colliers International Property for some reason. Because I have lost so much money. I will have made no capital gains for this financial year. And by selling Navra units, I am likely to make capital loss, even though I am looking to sell the units purchased around same price as the current unit price.

    I can afford not to sell (by selling more navra units) but I want to know if I would be better by selling any of the above holdings. (If it is any better, how better?)

    What would you exactly do, what sort of calculations would you do or what questions would you ask before deciding whether to sell them?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    My personal approach in this kind of situation is to sell off my worst performing funds - it is more tax efficient and limits the exposure to badly performing sectors or funds that are simply dogs.

    However, the only exception I would make is if I thought that some of the funds were unlikely to see significant returns going forward (a change in the fundamentals of that market sector or region), and similarly, if some of my badly performing funds were likely to improve significantly - again due to a change in fundamentals (eg if property suddenly became hot again, I would want to hold onto the property funds ... but in your situation I doubt that will happen for a while yet).

    I think I would tend to so something along the lines of what you suggested above ... sell off your dogs and then sell off only as much of Navra as you need to - and keep the funds that are likely to continue to do well.

    The only other thing I would suggest being cautious with is that the CFS Geared Share fund is likely to be quite volatile in the short to medium term while the market is all over the place ... if you were looking to minimise your risk, it might be better to consider selling down some of that too (but when it comes down to it, the Asia and Global Resources funds are arguably more risky!) ... although I'd usually tend to try and keep the funds which have the best chance of good performance - which is what you are doing.
     
  3. crc_error

    crc_error The Rule of 72

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  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Nobody said anything about chasing winners - we're talking about funds which have already been purchased - not about choosing new funds.

    Which is exactly what I suggested ... a fund which is in a hot sector will continue to do well until that sector is no longer hot ... and conversely, a sector which is not hot will not be the best performer.
     
  5. crc_error

    crc_error The Rule of 72

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    so your suggesting just because one sector is hot this year, that next year it will also be hot? Hence you should sell down exposure to it and beef up the hot sector?

    BT Financial Group - Ten investing truths
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    No ... I'm suggesting look at the fundamentals and make your own judgement.

    You can't use statistics alone to justify a position - you need to understand what is driving the market and look at how you might benefit from those forces.
     
  7. Simon

    Simon Well-Known Member

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    Buying last years winner is not been proven effective. In fact buying last years worst performer has proven to be better.

    I did read this somewhere but do not recall where.

    Cheers,
     
  8. crc_error

    crc_error The Rule of 72

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    Simon, this is exactly what I'm trying to suggest, so as sim suggested, selling out of colliers (last years worst performer) may not be a good idea and beefing up last years winner (australian shares).
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Come on guys - let's stop with the cliches and try and be a bit more constructive okay ?

    Last years winner was NOT Australian shares - it was China, followed by Resources.

    Last years worst performer was NOT property, it was international shares (particularly US based shares).

    Are you really suggesting that Asia and Resources are NOT the sectors to be HOLDING your investments in right now ? We're not talking about new investments here - we're talking about an existing investment.

    Blanket statements and aphorisms are quite meaningless without context and an understanding about what they actually mean.

    Why don't you try and answer the question by the original poster ?
     
  10. crc_error

    crc_error The Rule of 72

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    Sim, What you suggested to the OP is to sell down a poor performing sector (Colliers) and keep his Nava (Aust Shares) because they have done well over the last 12 months, and his Colliers fund is a dog. So what you suggested is to bail out of a poor performing sector, and stay in his good performing fund.

    One could argue that property, globally property has been hammered and should not have much more to fall.. yet Australian shares are close to record highs, and could have further to fall. if things get nasty.

    Looking at the market as we speak, ASX200 is down 2%, whereas the property index is down only 1%.

    Plus our dollar is falling again, so we are more likely to see smaller falls in international managed funds, in the case of the OP its colliers and platinum as the falling dollar offsets the losses in OS markets.

    I believe the OP should stick to his orginal asset allocation, and withdraw proportionally out of all his funds. Not just todays 'dogs'. Firesales of quality assets is not the way to make money.. best he keeps the colliers till market sentemant changes and he can get out at a profit. or use the losses of colliers to offset gains in Narva so he doesn't pay tax.
     
    Last edited by a moderator: 20th Nov, 2007
  11. crc_error

    crc_error The Rule of 72

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    Ps, resources are been hard hit with likes of BHP RIO, ZFX etc all down over 3.5%
     
  12. hiflo

    hiflo Well-Known Member

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    Thank you for your opinion and your input.

    The reasons why I do not want to sell CFS Global Resources and Geared Shares is that I have at least made 25% since September last year in those funds. Even though the resources sector does not look good, I cannot lose much more than what I have purchased for. It is also to balance against my Navra holdings ( Growth v Income)

    On the other hand CFS Property & Imputation has not done well at all for me as I am about to lose a couple hundred dollars. And may be I figure that I may be doing myself a favour by putting it into property because I am paying something like 9.45% on my margin loan. (It looks as though my interest rate on the property is going to be tad below 8%p.a P & I- I won't be able to do IO with offset for private reasons). Just looking at unit prices at the moment to judge the right moment to pull out. It is with same reasoning that I am thiking of selling out of all my Perpetual Funds (Aus Share, Geared Share, Platinum International)- not much gain made with a margin loan.

    Sim',

    In relation to selling CFS-Colliers International Property-the worst performing fund in my portfolio, I understand your reasoning of selling the worst performing fund to use the money elsewhere where you have more chance of making more return. But having made so much loss, it is so difficult (emotionally attached to the loss), unless I sell other funds (where I have gained so much, which apart from the gains made in CFS Geared Shares and Global Resources & Challenger Asia, I do not have much) to offset the capital loss.

    How do you know the fund is going to make a significan improvement? What factors do I have to take into account to make such prediction of a fund?

    I will think again about selling Colliers International.
     
  13. crc_error

    crc_error The Rule of 72

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    It is impossible to predict what the future will do.. so this is why I personally believe having a mix of quality funds exposing you to many sectors will smooth out the ride.. as you mentioned you have a handful of funds doing really well, but one 'dog'.. next year it can be the other way around.. i think in the first year, colliers returned something like 40% PA..

    And if you look at the BT figures, you can see each year has good sectors and bad ones..

    Warren buffet says 'never make a loss' so getting out now on colliers, would mean locking in the loss, and giving away the future gain.. unless you feel that global property will be a dog for years to come, I suggest you keep it.. along with a mix of other funds.. according to the ASX Russel report, over the last 10 years, global property out performed ALL asset classes!.. Something to think about..
     
  14. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Yes, but looking at the fundamentals ... global real estate is struggling right now because of a lack of liquidity due to sub prime mortgage concerns. That is unlikely to be resolved within the next 12 months.

    Australian shares are strong because we have a fundamentally strong economy. That is unlikely to change within the next 12 months.

    The AUD is high because (amongst other reasons) we have higher interest rates than other countries (particularly the US), and with our strong economy and the US's weak economy, that is unlikely to be a change within the next 12 months.

    About the only sensible suggestion you have made (in my opinion) is to consider selling down the portfolio proportionally ... thus preserving the current asset allocations. However, the assumption there is that the portfolio was deliberately constructed using those weightings and that there is never an intention to alter them as market conditions dictate. I'm not saying the OP did or did not do this - just that it's likely (given the original question) that this is not the case.

    So let's look at what these funds are actually doing now:

    CFS MIF - Property Securities shows the 200 day MAV now turning negative ... and with the current value below the 200 day MAV, that is likely to continue. I see no evidence of a recovery at this point - the long term trend is now downwards.

    [chart=CF;FSF0012AU;lasty;mav;20071119]Colonial First State Property Securities Fund[/chart]

    -----------------

    CFS MIF - Imputation shows short term volatility but within the context of a strong, unbroken uptrend. The 200 day MAV is very much trending upwards, there is quite a lot of room for further short term volatility before that trend is reversed.

    I wouldn't be rushing to sell out of this fund - it is a quality focussed fund with good tax effectiveness.

    Similarly, the Perpetual Australian Share Fund again has short term volatility and a value approaching the 100 day MAV. However, the 100 day and 200 day MAVs remain unbroken (other than during the recent correction) and trending upwards. The question is whether the Australian economy is strong enough to support current share valuations such that this volatility is constrained to the short term.

    The Navra AUS Retail fund is more conservative than the other two funds, with high cash balances in a rising market - the fund should (in theory) weather downturns fairly well.

    Personally, with a rising AUD, I would be reluctant to be increasing my weighting to offshore investments - and there is no evidence that the fundamentals of local companies is significantly overvalued, despite the markets being near their all time highs. I personally believe that we are seeing only short term volatility, and the market will recover in due course. I would see the only reason to decrease my weighting in a solid Australian share fund being if I had a high conviction that I could find a less risky investment elsewhere (and I'd like to know where !!).

    [chart=CF;FSF0013AU;lasty;mav;20071119]Colonial First State Imputation Fund[/chart]

    [chart=CF;PER0241AU;lasty;mav;20071119]Perpetual Australian Share Fund[/chart]

    [chart=CF;NAV0001AU;lasty;mav;20071120]Navra Blue Chip Australian Share Retail Fund[/chart]

    ... if we compare the three funds, you'll see that over the past 12 months the Perpetual Australian Share fund has underperformed the other two, although more recently it has performed better. All three show similar returns.

    The Imputation fund is the only one of the three to have exposure to the ASX300 ... the other two only invest in the ASX200 (whether this is better or worse depends on your point of view for preferring market breadth versus high market capitalisation).

    [chart=CC;NAV0001AU,FSF0013AU,PER0241AU;lasty;5;20071120]NAV0001AU, FSF0013AU, PER0241AU[/chart]

    -----------------

    CFS MIF - Global Resources shows a strong uptrend with occasional short term volatility. It continually sets new highs (although the last high was about 3 weeks ago). The strength in this fund is that it is a global fund and not beholden to only the Australian markets. There are resources companies worldwide which are benefiting from higher resources prices and demand. The only caution would be that resources are traditionally very speculative stocks and the sector can be very volatile. However, I still don't see any reason to go underweight in this fund for the short term.

    [chart=CF;FSF0041AU;lasty;mav;20071119]Colonial First State Global Resources Fund[/chart]

    -----------------

    CFS MIF - Geared Share fund shows short term volatility - but this (like most geared funds) is a highly volatile fund. It is down a lot from its recent highs, but still above the 100 and 200 day MAVs, and the 200 day MAV shows a strong uptrend still. Caution is always required for a geared share fund - and short term volatility should always be expected. The only reason I would go underweight in this fund was if I had something less volatile I wanted to move my money into. China and Resources are NOT less volatile sectors.

    Perpetual Geared Australian Fund is similar to the CFS fund in that is also highly volatile. This fund hasn't performed as well as the CFS fund, hasn't reached the highs, and has fallen further. If I had to choose between them, I would take the CFS fund over the Perpetual fund - although further research would be required to see if there were any changes in management style or risk exposure which would make the Perpetual the less risky option.

    [chart=CF;FSF0044AU;lasty;mav;20071119]Colonial First State Geared Share Fund[/chart]

    [chart=CF;PER0244AU;lasty;mav;20071119]Perpetual Geared Australian Fund[/chart]

    -----------------

    CFS FC - Colliers Global Property had its peak back in February and has been trending down ever since. It has now been weak long enough to see the 200 day MAV trending downwards - and with the fund value continuing to drop below what it was 12 months ago, it would seem that global weakness in property (most likely from sub-prime mortgage nervousness) will continue to take its toll for a while yet.

    [chart=CF;FSF0666AU;lasty;mav;20071119]Colonial First State Colliers Global Property Securities[/chart]

    -----------------

    Perpetual - Platinum International Fund

    With the strong AUD, weak international markets (other than Asia), and a fund manager determined to back its long term plays (leading to short term under performance), the Platinum International fund has done very little over the past 12 months. The 12 month high was only 4%, and it is now less than 2% above where it started the year. The medium term trend (100 day MAV) is now downwards, and with the value below the 200 day MAV, it would seem the longer term trend will also be downwards.

    I see little evidence that this fund will show better returns over the short term, especially with a strong AUD and a weak US economy. The Platinum International fund has a fairly high exposure to the US, so continuing weakness in their economy will be unlikely to have much positive impact on the fund in the short to medium term I would think.

    [chart=CF;PER0186AU;lasty;mav;20071119]Perpetual - Platinum International Fund[/chart]

    -----------------

    Challenger Asia has been a strong performer, with surprisingly little volatility over the past 12 months. It survived the correction several months ago quite well, only briefly touching the 100 day MAV line. Recently it has shown some short term negativity, dropping down below the 50 day MAV, but the 100 day and 200 day MAVs are untouched and remain strongly positive. Unless there is a change in fundamentals in Asia, I wouldn't think this short term downwards movement would develop into a trend.

    [chart=CF;WAR0012AU;lasty;mav;20071119]Challenger Asian Share Fund[/chart]

    -----------------

    ... as previously mentioned - unless you want to keep the portfolio with the current weightings, my suggestion would be to reduce your weightings to the Australian and Global Property funds, the Platinum International fund, and if you want to reduce risk, to one or both geared share funds.

    With a rising currency, I'd be reluctant to increase my relative exposure to international shares - although the impact on non-US currencies (other than perhaps the yen) is not necessarily as significant.

    Depending on your tax situation, you'd probably find the Imputation fund to be more tax effective than the Navra fund - although there is an argument that the safety of cash-in-hand from an income fund like Navra is nice to have in a volatile market (naturally you lose this safety if you reinvest distributions).

    By my calculations, if you were to sell both property funds, both geared funds, and the Platinum fund, keep the Imputation and Perpetual Aus funds, the Global Resources fund and the Asian fund, you'd then have to sell $37K of your holdings from the Navra fund. Alternatively, if you wanted to keep the CFS Geared share fund but sell the Perpetual Aus fund, you would have to sell $41K of the Navra fund.

    I'd be interested to hear opinions from other members (other than crc_error!).
     
  15. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I understand - but I think you need to learn how to separate the emotion from the reality. Especially if you have a margin loan - it is costing you every day you don't cover the cost of your interest.

    Don't forget that your distributions from funds other than Navra (income fund) are likely to contain elements of realised capital gains in them ... you can use your capital losses to offset those gains at tax time - thus saving you quite a bit of tax.
     
  16. DaveA

    DaveA Well-Known Member

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    fantastic post sim.... very very detailed and would be great to show someone from a non investing background as to why certian things are picked.... the graphs also show it 100% clearer

    i dont have much more to add than you have and i think its a fairly good sum up of the market atm... It would be good to seem some comparision between some more of the asia funds to ensure your not chasing past returns with challanger....
     
  17. Tropo

    Tropo Well-Known Member

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    Sim,

    My opinion is that Funds represented by charts:1,8,9,10 (from the top) are bearish for quite some time. :rolleyes:
    Others may bounce back up. If not I would consider ... termination :D
     
  18. hiflo

    hiflo Well-Known Member

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    Thanks for the detailed response, Sim'. Appreciate your opinion and graphs from CompareFunds. Didn't know how to interprete much from it before, but applying the 100day, 200day trends to the funds that I am holding and reading it with you analysis made so much sense!!!

    I have spoken th ANZ Margin Lending today and they have confirmed that I would need to withdraw at least $60K-$65K of Navra so that I can take $50K in cash. As I would like to have majority of my holdings with Navra, I would prefer to sell my other holdings of managed funds.

    And this is what I am going to do:

    1. Starting tomorrow I will withdraw funds from Perpetual Geared Shares, CFS Property Fund & Platinum International as I prefer to hold CFS Geared Shares and Navra Shares. As I have held the fund just over one year with the first instalmentsI will take the instalments that is over one year and sell some parcels of Navra Shares.

    2. I will hold on to the Imputation Fund. I have to pay approx $4.5K in extra tax this year even though I have paid my quaterley provisional and PAYE tax and claimed more than $3K in interest & work deductions!!!

    3. I will see what my balance is at end of November is.

    Thanks for your input everyone.
     
  19. Rod_WA

    Rod_WA Well-Known Member

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    My two cents worth:

    - Don't fear taking a loss. It's one of the great leaps of investing; people who continue to hold losers in the hope that they turn around will suffer against those who cut their losses and move on. That's not to say whether the funds that are down are losers, just that your money may be better spent elsewhere, and taking a loss may be "short term pain for long term gain".

    - Wise is the fool who admits he is wrong, crazy is the fool who hangeth on.
    (Rod M, 2007).

    - You say you're down about $700 across a couple of "losers". But this is less than 1% of your investment. If we get uptight about a 1% loss then how can we sleep at night? Can we expect 15% or 20% gains if we can't handle a 1% loss? Risk vs reward implies there will be losers and winners, we just work on the real long-term growth being greater than our losses and costs.

    - Say you're on 31.5% tax rate, and Navra passes you a 10% distribution, half of which is non-discounted capital gains (I don't know the %, just a guess). Then your $50k Navra is passing $2500 of CGT liability to you, so the $700 loss you take is actually going to save you $220 in CGT. Think of the loss as a tax saving (I know you already think that because the ML interest is tax-deductible, then you're saving a bit of tax, why not put that logic through to your CGT as well?)

    I don't get why you'd have $1k in Aus Shares, and $3k in Geared shares through the same fund manager. Is this some way of watering down your double gearing (ML + geared fund)? Why not put $500 of the $1k ungeared into the geared fund and keep $500 in cash for a rainy day or to reduce your LVR?
     
  20. tasmo

    tasmo Well-Known Member

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    Sim, once again a very articulate and excellent analysis. I thoroughly agree with your conclusions. :)

    Hiflo, you have come to a reasonable decision. Myself I would probably draw down more on the Navra fund to retain as much as possible in your other performing and more tax efficient funds.

    I agree some what with Rod_WA in that you may be better served in rationalising your CFS imputation funds into the CFS Geared fund which is a much higher performer.

    CRC_Error and Simon, in regards to BT's '10 Investing Truths', that to call them truths is nonsense, merely cliches that may possibly assist the lender, but are not helpful at all to investors in any rational analysis of investment. :(

    I also do not believe in re-balancing portfolios out of performing funds into under performers based on vague statistical generalizations of funds, and unsubstantiated beliefs that this year's dogs will turn around because they are bound to perform in the future.

    Cheers