Managed Funds US Fund Distribution

Having spoken to Theresa on Friday the bad news for all in the US fund is that no distribution will be paid as there was no profit to distribute. She didnt seem to know too much about it but hopefully someone from Navra can explain on here exactly what is happening with the US Fund

I was under the assumption that the systems had been back tested and proved to be profitable in a wide variety of markets - so i would be interested in some further explanations.

Cheers

 

Wouldn't there have at least been some 'profits' from interest earned, the odd small dividend etc? Being the end of the year, even if small, I would have thought these would have to be distributed?

If correct, I agree, I think it would be very worthwhile for someone from NavraInvest to comment here.

Also, is there any reason why in the Monthly NavraInvest Performance Commentary, the US Fund is not included? The June one doesn't seem to make any mention, and the links to the previous few months don't seem to be currently working.

 

Hi Sim.

Yes......I guess that's right from a Financial Year point of view.

After the first two months of operation the Oz Fund didn't Distribute either, but it did the next Quarter. The US has had 4 months of operation and while(as expected), wouldn't have made a Distribution at the end of the first Quarter, also hasn't done so at the end of the Second Quarter.

Four months is not long when looking at a new Fund and quite rightly, I think a longer period of time is obviously required for a better evaluation.

Having said that, I can understand some people's disappointment who may have purchased in March and were hoping for some 'regular income'. Assuming a Distribution is made in September, they will be waiting seven months.

Anyway, the Stockmarket is not an ATM that we can always simply expect to get regular returns under all conditions. The pizza is still on.....

 

Yes this is even more disappointing in the light of the big sell we were given at the time the fund was lauched. Large percentage figures being earned during the pre-release trading periods were floated about . I held off investing more, and am glad I did so, but some information from Navra at this time would be appreciated.

 

So, is it definate that there will be no distribution from the U.S fund?

 

It would be a disappointment for us too, if there won't be any distribution from the Navra US funds. We can't understand why that would be the case either.

 

Check the Dow charts and you will get an answer - I think.

 

Yes agree with Mr Darcy.. there was a bit of a sell on the US funds at time of lauch. I moved 50% of my Navra funds there, so it's a disappointment to say the least.
But if I think back I wasn't impressed with the Aussie fund when it first started, so I guess patience is what is needed here.

However, I'm sure the US was showing an outperformance in the days leading up to June 30 - surely that wasn't wiped out in 1 or 2 days ?

Or are we jumping the gun ?? there are no figures for last year on the US fund on the web page.. just shows ---.

 

Currency flactuation

Below example may explain how currency flactuation may affect investors in foreign markets.
Note: AUD = $OZ & USD = $US & Long = buy

The prime consideration is one of currency fluctuations - by default all investors in foreign equities markets are also currency traders. This issue is not as simple as it first might appear. Generally when traders first think about currency fluctuations they imagine a situation where they are long a US stock and the AUD raises against the USD thereby wiping out any gains they may have accumulated.

For example if I buy 10,000 USD worth of stock at 0.75 then in AUD terms this trade has cost me $13,333. However if the AUD rises to 0.80 this share holding is only worth $AUD12,500 upon repatriation, a loss of $AUD500. Note the price of the underlying instrument has not changed this loss has occurred merely on a projected currency conversion.

This raises an interesting management issue in terms of when are stops triggered. Are they triggered on a marked to market currency basis or are they only triggered on the quoted value of the stock?

For example if I were risking $AUD625 in the above trade should I have triggered my stop when the currency fluctuation caused a loss of $AUD625 or should I wait for the value of the position to fall by my risk amount. So as a trader do I monitor the share price, the value of the currency or both?

If I were going simply on the value of the stock at a predicted exchange rate of 0.80 and I placed my stop at such a point that the trade would be closed out when the price of my holding fell by $USD500 or AUD$625. However this might not be as easy as it first seems.

Consider a worst case scenario is where the currency rises and the position drops thereby generating two losses. If in addition to the USD dropping the above position had dropped to $USD9500 thereby triggering my stop. My loss would be $AUD1458 not the $AUD625 I had originally banked upon when the currency was at 0.80.

This is calculated by looking at the original purchase price in AUD - so $USD10,000 @ 0.75 = $AUD13,3333. The sale price of USD$9,500 @ 0.80 = $AUD11,875, thereby generating a true loss of $AUD1458.

If the reverse had occurred and the AUD had simply fallen to 0.65 then assuming no change in the price of the underlying my $USD10,000 worth of stock would have an $AUD value of $AUD15,300. A gain of $AUD1967 simply courtesy of a change in the currency.

 

top post tropo!

 

I am glad you like it !!

 

It's all just facts and figures to me .

Just hope it pays a distribution from here on in. I understand that a whole lot more

 

Tropo,

Glad that you have explained the impact of FX on Navra American Share Fund. This was my very point when the product was launched - whether there would be any currency hedging in place. The answer by Navra then was no.

I was disappointed in seeing the results for the American Fund at the end of June - according to NavraInvest's letter: There was a small rise in the DJIA of 0.37%, but the A$ strengthened over the US$ by over 4% - resulting in a net loss for the fund of 3.13%. What would the result be if there was some kind of currency hedging in place?

In the letter, NavraInvest stated that "We have implemented strategies to minimise the impact of foreign exchange rate movements on share transactions." Wonder what these strategies have been?

 

pthm,

The most common tools to hedge are : futures, options contracts, swaps or forward markets.
As a matter of fact a lot of equity players are reluctant to hedge the currency side of investment if it is held for more than three years !!
If you think that NI falls into this category, do not expect US Fund to be hedged or at least not in the way I describe above.

What measure S.N took to minimize the impact of currency fluctuation is up to him, but you must understand that hedging as such is a very complex subject. To hedge or not, was and still is a headache for most big players, and there is no simple answer to this question.

Basic idea goes like this ; you must determine whether you are going to hedge passively (isolate open position from the currency fluctuation) or actively (to increase the profit of the original position).
The idea of passive hedge is to realize a profit and loss (yes !!!! and loss as well) as close to break even point as possible.
An active hedge comes to play only under adverse currency conditions using stop loss order in spot or forward markets. In both cases timeframe plays important role.
If you wonder what NI strategies in this case may be - I am the wrong person to ask.

Current level of AUD/USD = 0.7620. IF AUD/USD hits 0.7300 it may help US Fund.

 

I was wondering whether it was some big strategy changes such as hedging.

When I rang NavraInvest the other day, they mentioned it was more like some 'accounting changes'.......

 

Thanks, Troppo. I had actually worked in treasury and am familiar with all the hedging instruments. However, I think it would not be cost effective for NI to hedge the FX exposures considering the size of their American fund portfolio (less than $9M). I am not saying they cannot do it, but the rates are not attractive for small amounts. I used to hedge portfolios of around $5bn.

As Alan said above, NI's hedging strategies may not necessarily involved the use of market instruments you described, but some accounting changes (possibly in the way which rates would be used to translate the currencies).

While none of us can predict what the A$ will do, we hope that NI will put in place some robust risk management strategies to minimise the impact of FX and not ignore it while they pursue the trading of the stocks. FX is a risk which must be managed.

 

Very good Sim !!!.

Basically .... hedging is more or less an insurance against a negative event. If you buy car insurance, you are hedging yourself against any possible negative events etc...

If the investment (share portfolio) you are hedging against makes money, you will reduced the profit that you could made, and if the investment loses money, hedge - if successful - will reduce that loss.
Because hedge cost money the question is, would the benefit received from it justify the expense.

 

pthm,

I used to hedge portfolios of around $5bn.

Let me say this, 5 yards on the line sounds nice. I like big numbers

As Alan said above, NI's hedging strategies may not necessarily involved the use of market instruments you described, but some accounting changes (possibly in the way which rates would be used to translate the currencies).

I would like to know how accounting concept works and implement it into my own trading if necessary.

While none of us can predict what the A$ will do, we hope that NI will put in place some robust risk management strategies to minimise the impact of FX and not ignore it while they pursue the trading of the stocks. FX is a risk which must be managed.

Yep!! Risk/money management is the key element to each trading/investing system.