Managed Funds The unofficial Navra performance tracking thread

Nope - we're back to the old chestnut you and I have previously debated.

From your example - if the fund paid a distribution of 2c today, it would be from trading profits accumulated since the beginning of the quarter. These trading profits result in an increase in the unit price. You will ONLY receive a distribution that has already increased the unit price by that amount.

The problem is (and the thing you are fixating on), is that the underlying share value has fallen too - thus causing the unit price to drop.

The equation is: unit price * number of units issued = net asset value + accumulated profits

Distribution comes out of accumulated profits, so in order for there to ever be a distribution, these accumulated profits must first go up by the amount of the distribution!

Now, if net asset value falls by greater than the amount of accumulated profits, then the overall unit price will fall. This has absolutely nothing to do with the distribution - it is 100% as a result of the fall in value of the underlying shares.

So you cannot blame the unit price fall on a distribution - a distribution can never (on its own) cause the unit price to drop below what it was at the beginning of the financial year. If the unit price does drop, it will be solely as a result of a fall in net asset value, not as a result of the distribution.

Either way - the things you are suggesting the fund do is quite impossible - the fund MUST distribute profits eventually ... it makes no difference whatsoever whether it does it in the quarter it was earned or by the end of the year.

I do understand what you are saying about LVRs, but it is not the fund's responsibility to be concerned about how you choose to run your margin loan.

 

I'm not sure how the unit price would drop as the result of selling ? If they are selling, then one assumes the share price is rising, thus the unit price will rise as well.

If the share value subsequently falls after the sale, thus decreasing net asset value and unit price, it is not a result of the sale or the distribution of the profit from that sale - it is from the drop in share value.

But then, I'm not sure if that's what you really meant by "leaving the fund with less shares to support the unit price" ??

If you have 10000 shares worth $10 each, you have $100,000 worth of shares. If you sell 1000 shares @ $10, you now have $90,000 worth of shares and $10,000 worth of cash (minus trading costs). So the net asset value is still approximately $100,000. Any subsequent change in the share price will affect the unit price, but not the sale itself ???

 

Yes, but your portfolio would still be worth 90K + 10K = $100K (before tax).

Yes, that is usually the way it works.

You just have to live with the fact that this is a sharemarket investment, and the value of the shares can fall. There is no capital guarantee - and there's nothing we can do about that (other than finding a different investment vehicle).

The reason I keep going on about it is that I see a few people with these "I suppose I'd like" thoughts - which I think are going to lead to disappointment, because the fund doesn't (and to a degree can't) operate the way those thoughts are heading.

I just want everyone to have a very clear understanding of how it works so that there are no surprises and no disappointments

Many of the principals (other than the trading mechanisms) also apply to every other unit trust / fund.

I only wish I had this much information about some of my other funds. I got some big surprises during the correction which were not pleasant at all. I made decisions based on what I thought the fund would do and I got it completely wrong and lost quite a bit of money I'd love to be able to ring CFS and ask them for details about how their fund trades so that I can understand it better - but I'm sure that's not going to be a productive phone call (unless someone here knows the right people I can call directly )

The attached chart shows the real (unadjusted) unit price of the Navra AUS Retail fund for the June quarter this year - which was an excellent quarter for the fund.

Unit price was 1.1373 at the start of the quarter, and reached 1.2126 by the end of the quarter. Then due to the size of the distribution, the ex-distribution unit price was approximately 1.1222 ... that's lower than the unit price at the start of the quarter ! The reason for this drop (as shows in the chart by the red arrow), is the distribution of all remaining accumulated profits for the year being distributed.

If you bought into the fund at any time during that quarter, you would see the unit price drop after the distribution to below what you bought in at. That's just how unit prices work and isn't unique to Navra (although the high levels of distributed income and low levels of unrealised growth to compound the effect).

What's more, in order to have bought in lower than the end of financial year ex-distribution price, you would have had to buy in before the 17th January !! Any investment after that date would see negative equity in your holdings post distribution. That's just how it works, and is actually a sign that the fund is doing really really well.

If people don't like how this happens, I suggest that they always make their purchases early in the quarter, and perhaps even early in the financial year - this gives you the best chance of retaining some unit price growth in the Navra funds. I think there's no need myself - but I know some people find it a bit difficult.

I actually see it as more of an opportunity than a problem - it means I can sell down some of my capital if I need to, without incurring much in the way of capital gains (perhaps even incurring a capital loss - which can be used to offset other realised capital gains such as those distributed from some growth funds !).

 

I think most people are more than happy to see your spreadsheets - so please don't stop.

 

All managed funds operate the same way - they start with a unit price of 1.0000 at fund inception and then issue units as money is added to the fund. Each day they recalculate the value of the assets held by the fund (add up the current value of all shares plus any cash on hand after expenses have been taken out for the day), and then divide that by the number of units issued to calculate the unit price for that day.

Thus the unit price is basically determined by two basic factors - the value of the shares the fund holds, plus the value of any cash on hand.

A distribution is a payment of cash out of the fund, thus the value of cash held drops, and the unit price drops accordingly.

 

The unit price drops after the last day of the quarter and before the first day of the next quarter.

eg. for this coming September distribution, the 28th of Sept is the last trading day for the quarter, thus at the end of that day the fund will have a unit price of X, which represents the total value of all shares held plus all cash on hand after expenses for the day have been taken out.

This means that if your transaction is processed on the 28th, you get that unit price before distribution is calculated.

Then they calculate the distribution after the end of that day and there is what is referred to as a "post distribution" unit price, which is a lower figure than X above, and reflects the drop in unit price after distribution cash has been taken out of the fund. Generally, the unit price post distribution falls by the amount distributed. So if the fund distributes 3.2c per unit, then the unit price will generally drop by 0.032 to reflect that. It's actually a bit more complicated - but that's essentially it.

If you look at the unit price data for some funds (CFS and Platinum for example), you'll see that they publish two unit prices for the last day of the quarter ... the pre-distribution and the post-distribution prices.

This means that from the first trading day of the next quarter (1st of October in our example), the unit price will be lower - even though the website hasn't been updated yet, if you have your transaction processed on the 1st October, you will get the lower unit price. You can check this by looking at the historical unit prices available on the Navra website - the first day of the new quarter shows the lower unit price.

Interestingly, Navra actually seem to do things a little differently than most other funds when it comes to reinvesting distributions - they don't actually use the post-distribution unit price to calculate the reinvested unit price - they seem to be using the unit price at the end of the first day of the quarter ... which I think is not ideal, since you have to wait an entire trading day to get your unit price (what if the market crashed on that day ??). I might be wrong here (it's been a while since I had distributions automatically reinvested), but you can check by looking at the unit price your distribution was reinvested at and comparing that to the unit price at the end of the first day of trading for the new quarter ... from memory, they are the same.

 

Just to be completely accurate, the Navra system buys when a share goes down, not the market. They might be buying one share while selling others.

PS. welcome to the forums.