Managed Funds The unofficial Navra performance tracking thread

Update: Index rebounding and Navra holding its lead

Hi guys,

Time for an update I think. So far, the ASX200 index has rebounded strongly from its low close of 5671.0, up to around 6260 today. Its still got some ground to make up to get to its previous high close of 6422.3 on the 24/7.

Navra performed very well relative the index during the drop, opening up a sizable performance lead over the index. My question posted a few weeks back was "how much of this will it hang onto as the index rebounds to its previous high?" Well its not there yet, but is getting much closer. As predicted, Navra has given away a lot of its lead. In fact well over half that lead is now gone, but it still is showing an outperformance over the correction period.

I'll post again when the ASX200 closes at 6422.3 or higher and calculate then what the Navra outperformance over this high volatility correction ended up being. Also, for interest, I'll take that perfect environment timeframe performance and extrapolate what that would mean over a 12 month period. i.e. What should Navra return to unit holders over a volatile 12 month period where the ASX200 was on a perfectly flat (zero growth) trend? In other words, does the DCT methodology itself generate the profit and if so, how much? or is it the "rising tide lifts all boats" that is generating the returns.

I project that Navra will hold on to some of its lead over this correction, but I'm not sure how much it will be. I'm also speculating that it will be a minimal gap over the period elapsed and would in all likelihood return less than 10% annualised.

But time will tell?

I've got to say, that I'll probably be lampooned for posting this sort of stuff here. I do like the fund, but I want to report its performance in an unbiased methodical way. If you don't like the numbers please refrain from shooting the messenger.

Cheers,
Michael.

 

Update: Index rebounding.......

As an investor in the Navrainvest startup, I find your posts invaluable, Michael. Please don't feel burned by any "Flames".

If I could suggest one small improvement- could you please show the current over/under-performance figure more prominently in the text of the post.

Keep up the good work and if there are any other silent appreciators out there, now might be a good time to let Michael of your existence

thanks'

Paul Mason

 

Many thanks Paul,

OK, how about this for a slight improvement on that last post then... Some facts:

Time elapsed since previous high on 24/7/2007: 38 days
Navra return over this period: -1.5% ((1.1230-1.1404)/1.1230)
ASX200 return over this period: -2.8% ((6247.2-6422.3)/6247.2)
Navra growth above the index over this period: 1.3% ( -2.8 - -1.5)

Now, if we assumed that the index had returned to its previous high and we were to annualise those DCT outperperformance numbers then it would look like this:

1.3% performance over the period of 38 days above what the index delivered. Annualised this would be a return of 12.0% (1.3%*365/38)

In other words, on a falling market, over the timeframe measured Navra would deliver a return of (12.0% - the ASX200 return). If it were a flat market then it would be 12.0% - 0.0% = 12.0%. Happy days! But its not yet a flat return on the ASX200. Its still down. The ASX200 return has done -2.8% so that's an annualised return of -26.9% (-2.8%*365/38). So, the Navra return we should expect would be -26.9% + 12.0% = -14.9%.

Just to prove that's the case we can annualise Navra's actual return over that period of -1.5% to get -14.9% (-1.5%*365/38). Yep, -14.9% annualised. That 12.0% annualised actual over-performance over the measured timeframe will slip further before the ASX200 index gets back to zero return though IMHO. Unless Navra can outperform the index as it "grows" which we haven't seen in the past, that 1.3% gap will close. Also, the time elapsed will be greater than 38 days so the annualised rate of a lower amount will mean 12.0% is on the optimistic side. Hence my speculation that 10.0% might be a bit too high in outperformance over a zero trend market.

Given the above analysis you could project that, if the ASX200 were to return an actual annual loss of -26.9%, given the current market volatility we should expect Navra to return -14.9% in absolute returns.

I personally don't invest expecting the ASX200 to do annual returns of -26.9%, hence why I want to re-run this check when the ASX200 gets back to its previous level. In that way I can show what the DCT methodology extracts in incremental returns above the index should the index deliver a 0% annualised return. i.e. what is it extracting in returns above and beyond the indexes underlying trend by trading the volatility.

Cheers,
Michael.

 

Now going in right direction

It's getting there..................


Performance Information
NAVRA BLUE CHIP SHARE FUNDS

AustralianWholesale Fund
YTD^ return
as at 31 Aug 2007 -0.02%
Total Funds under Management: $ 233.16 million

 

Who says a picture is worth a 1000 words. i quite liked you written explaination of your ideas much more than the graph. Great stuff Michael! Its really handy to know.

Lets just hope we never get to a situation where we would be better of having our money in the Bank for the year!.

MJK

 

Hi Michael, thanks for the updates.... be sure they are very much appreciated... I think by most of the silent majority.

cheers
p.

 

Yep, I'm a quiet one too. Thanks Michael, always keen to see your updates

cheers
Jenny

 

Hi guys,

Been away on a business trip for a few days so just checked back in and updated the chart. Unfortunately, it appears my above hypothesis is true. The gap in outperformance has closed significantly I'll attach the current chart again here and also update you on a few of the numbers...

Navra annualised performance since peak: -10.6%
ASX200 annualised performance since peak: -17.9%
Navra outperformance of ASX200 since peak: 7.3%

That last one's the big one. The annualised outperformance is now below 10%, and is in fact below my annual borrowing costs. And we're still yet to have the ASX200 reach its previous high. When it does so, I'm projecting that outperformance gap will close even further.

So, what does this mean for me specifically and potentially for others as well:

1. Navra loses money in a falling market. No real surprise there, we'd all expect that. But at least it doesn't lose it as fast as the ASX200 does. Having said that, it still loses money, so... Note to investors: Better OUT of Navra during a prolonged bear market.

2. Navra apparently seems to return less than 10% in a flat (zero trend) market. At 7.3% and falling, this is below MY cost of capital. Note to this investor: Better OUT of Navra during a prolonged flat market.

3. Navra typically under-performs the ASX200 in a rising market as evidenced since inception. And it significantly under-performs the ASX200 accumulation index (XJOAI). Note to this investor: Better OUT of Navra during a prolonged Bull market and better IN direct shares.

So where does that leave me today? All three scenarios, falling, flat and rising, suggest I'm better OUT of Navra. However, I'm also a long term investor, and if I am not to trade in and out as the market moves through its phases, then maybe the downside protection (it outperforms in a falling market though still loses money) suggests I should just stick with it for the SANF.

It all comes back to where I believe the market is at. I believe the ASX200 is now at the top end of fair value but should run a bit further up yet. But I'm no oracle and that is by no means guaranteed. As such, the downside protection of Navra helps my SANF. I'm not gutsy enough to switch to an index tracking fund at this stage of the cycle.

But it also suggests to me that riding out a bear cycle invested in Navra is not wise. Although I'm a long term investor, I'm not locked into any particular asset class when it no longer represents a wise investment choice. I retain my view that exiting the ASX altogether, and this includes Navra, remains the approriate action when the market gets over-heated. I got accused of being sporadic, or reactive when proposing that strategy, but I am still convinced that due to the low transaction costs associated with buying and selling shares or managed funds, that time out of the market is just as critical for long term financial growth as time in the market.

I'll be sure and post when I believe the ASX no longer represents fair value and that I'm taking my cash to the sidelines for a few years or more. I just hope that isn't anytime soon. Let the good times roll!

Cheers,
Michael.

 

Wonderfully informative post as usual Michael - thank you ! I reckon the annualised performance would be greater than most people's cost of funds - certainly is for mine. That is all great food for thought for me.

Cheers
Carl

 

I love posts that throw up a challenge of my current paradigm - thanks Michael.
So what about commercial property trusts? They appear to be overheated at the moment but my plan is to use Navra Fund as a SANF & then into CPTs.
I do agree with the fundamental structure - residential property for capital growth (our forte) - & funds for cash flow (Navra/CPT). The basis that a CPT receives their rent before company profits sits well, even in a falling stock market rent is still paid. Sure the 'value' of CPTs rise & fall with the ASX but I like the basic principle.
Why not buy commercial - no b...s, happy with residential and want to concentrate on it, ?not mature enough in experience to tackle commercial (outside comfort zone), cost of commercial is intimmidating & getting larger, good commercial is expensive commercial. Maybe when I grow up!
But my current comfort factor is buy residential, buy navra/CPT & when that layer or foundation is complete - move onto hands on commercial.

 

I have been thinking this exact same thing over the past few days...

It would sit with me well that a fund holds a high level of cash (40%) earning a rate of 6-7% while my cost of capital is around 9%, id prefer that money invested...

i would love to hear from steve on this matter but i guess thats not going to happen...

i do wonder how other people view this...

 

Thanks again Michael. Two points:

1.SANF?

2.Comparing Navrainvest with other shares we should bear in mind:

Hindsight is a wonderful thing. Only the owners of the historically top performing investment in the entire world can entirely escape the pangs of regret it can evoke.

When my expectations of an investment aren't met, I use the "I told you so" test. Was there anybody around when I was making my decision who can now say "I told you so".

So hands up those of you who in April 2003 said "I'm not going to invest in this NI because in the next four years the market is going to rise at an unprecedented(?) annual rate with historically low volatility". No? I thought not.

Even in a down/dawdling market like now I expect Navra to produce a nice distribution figure because of higher volatility. That's what I need to show lenders when I seek increased loans on my properties.

That isn't to say that NI is perfect. Three things I would like to see it do are:

Include the Streettracks ASX200 ETF in it's portfolio. If the algorithm performs better than Buy and Hold for any individual share then it should also do so for the index.

The ASX200 contains many shares that don't meet NI's conservative selection criteria but when held collectively they must(?) be safer than any individual share held in NI.

Look at writing options on the portfolio. If the buying and selling prices are sufficiently stable it should be possible to write put and call options and purchase sell the parcels to option buyers. Thus income is enhanced while buying and selling what you would any way.

Perhaps someone who knows about option could show me what is impractical about this idea.

I would like to see more active marketing of the fund to those who it could most benefit who aren't in the Navra world. I am thinking of property investors who are reaching the serviceability barrier.

Mortgage brokers could be approached and paid for providing sales leads.

Also what about some advertising in the property investment and mortgage magazines. I suspect there is some legal impediment to at least the former of these, but again perhaps better informed Investeders could give their reactions.

I hate making suggestions which will generate more work for other people but somehow that has never stopped me making them!

Paul

 

Last year NI produced about 20% . Now we are trying to suggest it will only provide less than 9%. We are only 2 months into the new year. personally I would give it a bit more time. I'd be surprised if NI didn't achieve 10% at least, but maybe I'm naive. Being out of the market sure is safe but you won't make any decent money either.
Also if you've got cash not leveraged...where else would you put it? In a term deposit!
I do like the idea of shareing money between NI and LPT funds for a bit of income mix.

MJK

 

I think this is an important point that I have been thinking a lot about lately. I read a great article in a recent John Maudlin newsletter (InvestorsInsight : Thoughts From The Frontline > Archives - I hope that works) that basically suggests that things will start reverting to the mean soon (ie, don't expect spectacular growth in the markets going forward) and in that sort of environment it is more important to avoid losses than to make gains (from a long term investing perspective).

Of course the view about the markets reverting to the mean is a very general statement and there are probably sectors that will continue to grow well, blah, blah, blah, but it's certainly something to think about.

The article has a few other observations about long term investing, so I recommend it for an interesting read.

John.

 

I can't speak for Steve, but did wish to address this. In my view, if people are uncomfortable with or can't afford some short term losses, then you really shouldn't be in the market. We've had a dream run over the last four years, you can't expect it to continue forever. Don't y'all have buffers in place?

Re: the fund holding 40% cash - would you rather the fund was invested 90 - 95% at all times and taking huge hits when the market falls? I like that the fund has these amounts of cash available - it means that it can take advantage of the troughs (like it did a few weeks ago) and sell on the way up (like it has been). How are you going to sleep at night when the market drops and stays down for months or even years?

I guess it's a case of 'you're damned if you do and you're damned if you don't'. If you're not happy with the performance, take your money and invest it elsewhere. If you are happy with the performance, why question it? I think some people need to reign in their expectations as they expect miracles.

Mark

 

Of course everyones got buffers. I think what people are saying is they may be able to do better by altering their strategy depending on how things are going. Nobody is sure though and it is right to question all things even if it just reassures you that you might be doing the best thing already.

MJK

 

=Sleep At Night Factor. i.e. Risk. Does this fund have a sufficiently reduced risk profile such that I accept a lower overall rate of return than buying the index or direct stocks. I think its lower returns is a factor of its lower risk. Hence, I would consider a valid argument for sticking with it to be risk tolerance and lowering your risk profile. My other point was, that at this stage of the market, a lower risk profile investment in that asset category makes sense to me. Its too late to buy the index directly with the Streettracks ASX200 ETF for example as you mentioned, or to buy a spread of small and mid cap stocks on the expectation of the market doing all the work for you.

No, but a lot of people did say: "I'm going to invest in the market directly as the returns are better". To those people, I now concede that they were correct over the recently elapsed investment timeframe. Given increase market risk, I believe the time for direct investment has passed, and I'm trending towards the time when I believe no exposure to the ASX will be the correct asset category allocation.

Yes they will, but they are still eroding the value of your investment at the same time. i.e. they lose money in a falling market, and just distribute some of what's left to you. I don't care if they can give me a bigger distribution due to the volatility, they're still distributing to me from a loss position having reduced the value of my asset. I don't want to get caught up in semantics about trading profits still being profits. Its just a factual observation that those distributions come from a loss position in a falling market. I would personally rather preserve my net worth than have the visibility of distributions to help me with a bank servicability equation. And I would think that if the servicability is an issue for you then buying bonds might be a better way of showing that servicability. At least your net worth is preserved at the same time as you are receiving an albeit modest distribution.

Cheers,
Michael.

 

Our great Bull is becoming a bear!

What make you think we are not heading for 7000? The USA?

MJK

 

I would not think about 7000 as long as DOW is under 14000 (MHO only)

 

Hehehe...

We may yet be heading for 7000, I haven't written that off yet. I don't look at just what the market headline numbers are doing without positioning that in a fair value framework, I calculate underlying value based on profit outlooks and position current share prices within what I perceive is a fair value range based on conservative PERs.

I sincerely hope the good times will continue to roll for a year or more yet, but we are getting to the end of this bull run. Sometime relatively soon it will become apparent that prices no longer represent fair value, and at that time I will revisit my asset allocation strategy. Don't ask me to predict how far away that is yet though, I'm no oracle.

Attached is one analyst's view of the fair value range and where current index levels put us within that range. This approach is the same as what I apply in principal.

Cheers,
Michael.