Managed Funds The unofficial Navra performance tracking thread 2

Hi all,

I want to keep discussion on this topic going as several of us seemed to be getting something out of it, especially from Michael Whyte and his charts.

Also I noticed the NavraInvest web site saying the following today, 'The actual returns in September for the Retail and Wholesale funds were +3.57% and +3.6% respectively compared to the +5.13% return of the S&P/ASX200'. I'd be interested to see a chart on this if available Michael...

It is also notable that the fund was holding 43% in cash as at the end of Sep.

I would like to hear thoughts on the future direction of the Aust share market. Is there value there? How much longer does this bull market have to run. FYI I see the market is trading off a forward P/E of 14.6.

Regards,
Mark Leo.

 

Mark,

No problem. I'm more than happy to keep posting the facts as I believe the fund's performance should speak for itself.

Since the beginning of October (the new quarter), the performance has been:

Navra Return: 1.5% (33.3% annualised)
ASX200 Return: 1.7% (39.8% annualised)
Navra Under-performance: -0.3% (-6.4% annualised)

This is obviously too short a period to be annualising performance, but the under-performance is still relevant. The chart shows the relative under-performance by Navra as the ASX200 index has rallied to new highs.

I too welcome discussion and insight from others. My OPINION is that the fund did not perform as well as I would have hoped through the recent correction then recovery. In fact, the gains lasted a few days beyond the previous high being regained before the index once more outstripped the fund. i.e. Navra delivered absolutely no sustained trading gains using the DCT trading system through the recent significant volatile correction. To my mind, this invalidates DCT as a system and has started me looking to alternative investment vehicles.

Again, all just my OPINION. I accept that others invest in this fund because they need the visible income for servicability requirements of lending institutions. I invest because I want high absolute returns to assist with servicing negatively geared properties. So total absolute returns is the only measure of success for me.

Cheers,
Michael

 

Michael

Has NI ever had a quarter where it has outperformed on the upside to the benchmark since inception. I know it has had an outperformance on the downside by losing less, but has it ever achieved its aim of outperformance on the upside.

It seems if they were 40% plus in cash at the end of September, they should have been able to distribute at least 3.5c. per unit with such a buffer in reserve even if some of the gain was still in "retained rather than realised gains". There would have been enough of a margin to allow for this. With such a big correction and a modest distribution I dont believe their methodology will ever outperform the index.

 

not sure if i would go so far as to say it invalidates it as a trading system - it all depends on what the purpose is. I do believe that the system as currently implemented makes it theoretically impossible for it to outperform the index (as it was originally stated that it would do).
as I have stated previously, the best it can possibly hope to achieve over any reasonable length of time is to match the index with less volatility (on the up & down sides).
I think this is largely due to 2 factors:
1) The choice of stocks are asx 200 blue chip stocks which dont tend to be overly volatile, and therefore dont match the DCT idea as well as some other basket of stocks might.
2) The fundamental methodology used to buy/sell stocks. It will theoretically always run out of cash before the emotional lows and run out of shares before the emotional highs.
Having said that it is still a reasonable choice as an income fund that should always follow the index fairly closely (if not a little behind)
I would be very interested in hearing what funds you guys are looking at as alternatives, and having a discussion on their associated risks vs returns (i still think Navra is a pretty safe and easy fund if you dont want to use index funds and want income)

 

Talking with Steve recently he noted that the realized profit for the quarter already outstrips the ASX 200 gross performance as a result of the recent volatility.

Also he said that the potential from very low buys from the previous quarter has not been fully realized and thus the Fund is looking exceptionally good when you compare the performance to average portfolio prices held. (That certainly aligns with my understanding of Dollar Cost Trading i.e. that you sell in ever greater volumes the higher the price has moved. I.e. you make the most realised outperformance in the last portion of the price movement.)

Bear in mind also that the market is sky high at the moment! Steve advised they're over 40% in cash again. Think through the implications for that should there be even a small correction as one might say is imminent given the incredibly weak US september housing starts (which the US market seems to have ignored for the time being bolstered by some strong earnings results).

As always time will tell. But let's not kid ourselves that we're in anything but a surging market just right now.

 

Can you elaborate further please, not sure I understand what you are saying...

 

Hi Nigel,

Which is precisely the sort of spin that I dislike the most.

To paraphrase: The fund may not have outperformed the index in total returns, but because we did a lot of actual buying and selling, we've realised some big trading profits on individual trades.

You do realise this is complete spin don't you. Lets paint an example to explain it better.

I buy into the fund with $1M. Share prices go up and down and all over the place and I trade a lot. I lock in gains of $100K through those trades but increase my cash position and reduce my exposure to the market. At the end of the day I now hold $950K of stocks but cash of $100K representing my realized trading profits.

Analysis:

The value of my total holdings is now $1.05M made up of cash and shares. So, I've realised an absolute return of 5% over the period. However, I have also "realized" trading profits of $100K representing a 10% return on my original capital invested.

Lets assume the index has gone up 7% over that period. In absolute terms you've under-performed the index by 2%. But, and here's the big but, you've got all these awesome "realized trading profits"! In fact, 10% beats 7% doesn't it! Give me a break. I don't care that you've realized profits, you've still under-performed the index. All of those trading profits are reflected in the unit price. Under-performance is under-performance, end of story.

If I'd held the index I'd now be worth $1.07M instead of the $1.05M you've delivered. To try and sell this as performance which "outstrips the ASX 200 gross performance" is complete spin and bordering on the fraudulent IMHO. I think you need to be really careful when trying to position absolute under-performance as gross out-performance. I believe that is misleading.

Cheers,
Michael.

 

PS. From a tax perspective this is the worst result possible. If you'd bought and held you'd have made a $70K profit. Instead, you've actively traded and delivered only an absolute $50K profit. But what's more, you now also have a tax liability for trading profits of $100K. Not an ideal outcome at all...

 

I had a feeling it was something like MW has explained
If that is what is being touted that is a disgrace.
Its like a footy team that loses the game but says "yeah but look at all the possessions we had, we well and truly beat them on possessions".

 

MW what funds are you looking at instead?

 

Just starting out looking. I want an increased exposure to the commodities sector so am looking at funds with a focus on that sector. I need to talk to my margin lender about how I transition my portfolio and plan to have that discussion next week sometime. Work is a bit frantic so often the easiest approach of just leave it as it is, seems to become the defacto response.

Time poor...

And never forget, that although its not beating the index and is tax ineffective, it is at least returning me an absolute return above my cost of capital. Therefore, to remain invested in the fund is a better result than to cash out. I don't want to cash out, I just want to optimise the way I am invested and can't seem to make the time to do this as yet.

Cheers,
Michael.

 

Hi Michael

Thanks for your thoughts.

And yet, on your own figures disclosed elsewhere, you have $809k in NavraInvest units

I must admit I'm a bit bemused that you seem to go back and forth in your views about the fund like a yo-yo. If you think it doesn't work and doesn't suit your needs then exit the fund and invest elsewhere.

Your example also involves a risk. You get to that point of having 1.07m of assets and have a need for say 30k of that cash. You go to sell down...but what do you sell down? AND perhaps the market then takes a big dive...

Whereas, if you'd taken your $50k distribution from Navrainvest in cash...because you had interest and other bills to pay with it then you'd be protected from that market movement.

Further, you give the example...but you didn't do that did you? Are you capable of managing your portfolio such that you can sell down and reinvest with the right timing to meet your cashflow requirements and grow your asset base at the same time? Don't know the answer to that...but you've chosen to outsource so far. It's easy to be wise in hindsight.

Of course Navrainvest funds in isolation are tax inefficient...but it's a tool for a purpose...to generate regular income as part of a portfolio that is otherwise negatively geared to permit holding of the maximum possible asset base of property.

What counts with tax at the end of the day is your overall tax position.

Your suggestion that it's "complete spin and bordering on the fraudulent" is entirely unjustified. Lots of very respected value fund managers have underperformed the index and have 3yr results below NavraInvest's (Maple-Brown Abbot and Investors Mutual spring to mind).

Cheers
N.

 

This is not the point of the discussion. The point of the discussion is analysing Navra in a real-time environment.

This makes no sense - if you took your cash from Navra and the market took a dive you would be down (on your portfolio) the distribution + the dive.
The difference (ignoring tax) is the 3 month lead up of underperformance BEFORE the distribution. Whether you take the distribution or just withdraw cash from your margin loan your LVR is still the same.

Not true - if your requirement is to use managed funds to fund cash shortfall, invest in a fund with higher growth and just withdraw money from your margin loan. Same result, much better tax effect.
You have to look at each limb of your investment strategy in isolation to ensure it is as efficient as possible.

The problem raised is not that it has underpeformed the index, it is underperforming the index then putting a spin on it like "we out outperformed the index with our gains on trading". It is a smoke & mirrors play and proves nothing.

 

Sim
True your LVR does increase by a greater amount taking cash from your margin loan instead of distribution, however that is not the end of the story...
First and foremost, you now have to pay tax on that distribution at your marginal rate, which decreases your net worth (compared to withdrawing cash) anywhere from 15%-42% of the distribution.
And secondly if you withdraw cash, your actual investment (in dollar terms) remains the same, rather than decreases with the drop in unit price.
This means that not only have you copped tax, your investment is now compounding from a lower base, which will obviously slow down the growth as well.
It is definitely important to plan and keep an eye on the LVR, but the most important thing is increasing net worth, and anything you pay to the taxman that you dont have to, and any reduction in your capital base (for compounding returns) decreases your net worth as compared to other options.

 

I have enjoyed excellent analyses of Navra fund by some of the members in the forums and I appreciate your time for putting such wonderful insight on to a public forum.

Having read various views regarding the fund during the volatile times, and having heard Steve Navra speak directly about the fund outperforming the index when applied retrospectively, I can't help but to conclude that what Steve did on paper is very different to what he has done running the fund.
That is, when he applied the strategy retrospectively with 100% of FUM it may have outperformed the index (as he claims) but would it have outperformed the index if only 60% of FUM was applied.

Not knowing the exact content of Steve trading strategy I cannot apply the strategy myself, but I am wondering if anyone can do that and see if when only 60% of the FUM is traded and 40% kept in cash, would it ever outperform the ASX index.

And if it never does, then, I can safely conclude that the Fund will hardly ever outperform the index, and change my strategy and divert some of my money in in index funds.

This is not to say that I disapprove Navra Fund but knowing what I know now, I will change my risk profile slightly.

 

If 40% is in cash with the fund and I bought $100K of units a month ago and the market drops say 10%, then the whole of my investment is reduced by the 10% drop not just the 60% "invested"! What about the 40% supposedly held in cash - why should 100% of my units drop and no allowance be made for the cash balance the fund holds. It seems I am being hit harder than need be if this scenario occurs?

 

Because the actual drop that they suffered on the shares they held was 20% or there abouts. The cash buffer just reduced the loss as the cash buffer did not loose the 20%.

Cheers

 

Hi Nigel,

Its the spin I dislike, not the fund per se. I re-iterate that trying to sell trading "profits" whilst under-performing the index in absolute terms as some sort of over-performance is extremely misleading. I still believe the fund offers an acceptable return for its risk profile and don't rely on spin to form this opinion. The spin detracts from the fund IMHO. Historically the fund has almost matched the ASX200 but has done so whilst holding a degree of cash and therefore reducing its downside exposure. Its performance speaks for itself, so spinning a line about over-performance whilst under-performing is innappropriate and frankly a little insulting.

Having said all that, recently the fund did not perform as I would have hoped in a volatile environment. I had hoped the recent volatility would give the DCT methodology the environment it required to deliver trading benefits above the ASX200 peak to peak, but it did not. As I also said though, it still matched the index peak to peak so in that regard is still a good investment. The index itself has been doing all the heavy lifting, and the Navra fund has benefited from this.

I also mentioned my intent to diversify my holdings, but that I am time poor. For now, a fund that pretty much keeps up with the ASX200 is a pretty good place to be. Far better than having my cash on the sidelines. Given recent volatility and downside risk, there's a good argument to make that now is a very wise time to be in Navra given its downside protection. So, I'm not rushing the process of diversification. I'm going to plan the process and work through the options first. This should also allow the next few months to pass and the sub-prime issue to play out in full first.

Navra will probably retain a role in my portfolio, but as you've already noted, I am over-exposed to this one fund at present.

Cheers,
Michael.