Managed Funds what if navrainvest went bust?

I know this is rocking the boat a little. But as an investor I wonder how safe the fund is as the company is hardly profitable. This cant keep going.
What would happen if the fund went bust. Would people be able to get their capital back?
I have a large exposure to navrainvest funds and am considering reducing my risk.
From the sounds of it there are a lot of people with over 50% of their portfolios in navrainvest.
question yourself why are you really investing in it
I know I've been analysing it myself
The promises of outperforming,
Navras track record

excuses of a straight line up
Have we all been conned by extremely good marketing

index funds, LICs - seem a lot more attractive

I guess Ive been holding for the cashflow
tho this is not tax effective, it helps out with bills
But the same thing could be done with higher growth stocks/funds and selling some profits every quarter.

No hidden agenda here, I just want to start some discussion in this area as I think many of us have been wondering why we really are investing here.

 

Hi, Sim,
Is GTP (Great Southern Plantations) classed as a 'blue-chip'?

But apart from my query, it seems pretty obvious to me that there are an increasing number of Navra investors who are having doubts about this fund, and its viability in the present climate. And whilst those concerns may be unfounded, (and I agree with Sim here that they are unfounded), investors will have second thoughts as to their future Fund Manager if they can't get the right answers.
It's all very well to contact the Company direct, but nothing beats a detailed response from Navra management posted on an investment forum such as this.....for everyone to digest, and question. It all becomes very transparent.
I think it would be easier for Navra to do this, rather than cop hundreds of phone calls/e-mails requiring individual answers.
Just my 2 cents worth, but I think there are a lot of people who have the same concerns as dkmc.
Jayar

 

Hi dkmc.

If for example you were to hold shares in Westpac or indeed had money in their Savings Accounts and asked what would be the process for investors if the bank wasn't able to meet their commitments, then I would simply call this due dilligence(even if unlikely) and a reasonable question. I don't see any real difference with your question as long as there was no direct inference that this was going to happen.

I'll probably raise a few more questions, but the following is my understanding.

Under the Company Constitution they can at any time switch from charging a Performance Only based fee to charging a Fixed Fee. Given this option, with current FUM in excess of $160mil and assuming a Flat Fee of something like 1.5% was adopted, then the company would immediately be profitable with current FUM and the question becomes less relevant.

A secondary question though might be what effect would the changing from a Performance Fee to a Fixed Fee have on FUM as this would directly flow on to profitablity. Until such a course of action was implemented I guess various people will have opinions, but nobody really knows? Maybe no effect or alternatively it may vary FUM. Might be an interesting Poll Question to see if the Fee Structure Type would influence individual willingness to invest?

I would also be interested to know exactly what would be the process in your scenario.

From memory, my initial due dilligence told me that the shares the Managed Fund trades is actually held separately by an independent body(I forget their exact name) and the Fund simply intructs them on the trades. Therefore the company shares such as Westpac, BHP etc would be simply held in trust by this third party and in the event that the Trading Company ceased to operate then presumably these shares could be relatively easily liquidated and therefore not a huge risk.

I have no idea what timing would be involved here though? That may be an individual risk depending on timeframes.

At the moment, if you instruct the Managed Fund to sell some of your Units then the money appears relatively quickly in your account. If the Manager no longer existed then I am not sure what the exact process would be?

Having said the above, my understanding was also that there was some fairly strict compliance required in that the trading company had to regularly show that they had a certain amount of operating funds or they would be unable to continue to be licensed.

Therefore I would think the most likely result would be that if a trading company looked like it would not be able to meet its financial regulatory requirements, this would generally be known with some notice and an orderly 'unwinding' could occur and the underlying shares sold and distributed to unitholders.

The above is to the best of my humble understanding only and should obviously be claried with the individual/official professionals.

 

Good question raised here, regardless of the investment we are discussing. When assessing any indirectly held investment (i.e. where someone other than you/your controlled structures will own and/or manage the asset) risk of loss due to manager error, negligence or fraud is a proper question.

I can't speak for NavraInvest but let me make some observations:

1) We need to draw a distinction between NavraInvest Limited (which is the Responsible Entity of the various Funds as well as the investment manager) and the underlying assets, i.e. the various shares which comprise the funds themselves.

2) Sim is correct that ASIC has a supervisory role with respect to responsible entities. Minimum net tangible assets required or failing that use of an external custodian is one protection (see 3). Further, the Corps Act imposes a number of obligations upon RE's and there are probity checks on the officers of REs. ASIC has powers to replace RE's and appoint interim RE's.

3) Alan is correct. RBC Dexia Investor Service Australia Pty Limited is the custodian of the fund assets, i.e. it actually holds legal title to the listed shares which comprise the assets of the fund. So the manager and RE can go down but the fund assets are held by a third party. This is helpful but not bulletproof. I believe this company is a subsidiary of Royal Bank of Canada.

4) The funds are audited as required by HLB Mann Judd. The auditors have an obligation to report irregularities to ASIC.

5) The Fund constitutions are different from NavraInvest company's constitution...(think of the various fund constitutions as like the trust deed of a trust)... But yes under the fund "rules" a flat fee can be paid. Query whether that change would make people pull out their funds. Don't know.

6) Fund performance is, as Sim mentioned, a different issue. I look at it this way. The fund is essentially an "absolute return" style fund in that it seeks to produce high quarterly income for those who want such income to live off or to assist in the servicing costs of other, negatively geared, assets. The question which remains to be answered is whether in down markets it can continue to produce year in year out a 15%+ return. If it does that, then it has fulfilled its objectives. There are many highly respected value managers out there (e.g. Investors Mutual and Maple Brown Abbot) which have performed poorly in the last few years' bull market.

As they say, it's only when the tide goes out that you see who's not wearing any shorts. So, I think the jury should still be out on this investment, with so far it having done what it's supposed to do.

My 2.2 cents worth.

Cheers
N.

 

Having had some exposure to direct investment versus Navra Invest, I think being assured profits are available to be drawn down from your direct investments would be based on the assumption you're an experienced trader or have the ability to ride out potential periods of volatility. I don't think NI is intended for investors of that ilk - its for basic conservative mums and dads with buggar all knowledge of the market or the lack of time to develop that knowledge, who want exposure to profits in the form of regular INCOME from Aussie blue chips, inside a relatively conservative framework.

NavraInvest is what it is, and as far as I can see (with proof from returns received) does what it promised to do. I don't think anyone has been 'conned by extremely good marketing', although some may well have invested without doing their own due diligence. They wouldn't be Robinson Crusoe - some of the people investing in other vehicles promoted at wealth creation seminars apparently do so purely from one presentation and rave reviews on other forums, with no DD whatsoever, into much higher risk investments.

I'm operating (perhaps wrongly) under the assumption NI will change their fee structure as allowed under the constitution, if and when that is necessary, and I don't have any great concerns about that either.

I have yet to see any other conservative income based fund I have been able to understand or feel comfortable with. I am sure they are out there somewhere, but NI still keeps coming up with the goods.

I do agree with the point made in this thread that communication from Navra management is lacking (at least in comparison to the honeymoon period when the fund was in the establishment phase). It seems ok for Sydney based people who can get along to AGM easily, but notes and minutes are sketchy and obviously don't get across the level of detail people like Sim' have been able to extract with the benefit of being there.

But then if we discussed any other managed fund in as much detail as NI is discussed, I daresay we might pick up some management foibles in some of the larger LIC's etc.

Far as I am concerned NI should keep doing what its doing, but work at improving communication. Having said that Investor Services still have answered any question I've ever thrown at them and I'd echo the encouragement for concerned investors to touch base with them, perhaps before posting 'potential concerns' here. At least then the discussion could be based on a clear statement from responsible people at NI, and we might avoid a bit of unnecessary panic.

Seems a little unreasonable for NI to expect others to go in to bat for them IMHO, if NI remains kind of intertwined with this forum. Steve would do us all a favour by making a one time post to address some of the concerns (valid or otherwise) that have been raised. It would certainly demonstrate some commitment to the people who have helped him get the fund to where it is.

Cheers
Carl

 

Agree with the point made earlier and that is if other funds were subject to the level of scrutiny/discussion which NI receives then no doubt some foibles/doubts/inconsistencies would be uncovered. InvestEd is a forum for general financial discussion/education (well thats what I think it is), not a forum specifically for NI discussion though NI features very very prominently and this level of scrutiny seems at times to be to NI's detriment. I fail to see why NI management should be issuing policy/company statements on InvestEd though I do feel the NI web site could be updated with company related information more frequently.

As to NI's availability I don't know any other fund management organisation which is so available. For example, I can ring NI and speak to the chairman (Steve) or pretty much any other staff member.

As for fund performance NI seems to have done exactly what it said it would do. I though, no doubt like a bunch of others, am waiting to see how NI goes in a falling market and for that matter in a prolonged sideways market which tends to be the most troublesome market of all to trade.

Cheers all

 

Dkmc

Analysing why we invested in NI, in my Xmas tidy up I found an old copy of NI Optimising Investment Structures Shares Newsletter of 19 March 2002.

Below is an extract from their results:-

Summary as at 19 March 2002

ASX 2/7/01 – 3377
19/3/02 – 3405 – Return 0.83%

MTS (NI) same period – 34.45%

A 9 month period.

Shares in portfolio:
AFI, ANZ, ASX, BWA, CBA, NAB ,NAB02 ,SUN, WBC, TAH
AMC, ORI, ORI02, WES, LLC, BHP, WOW, TLS, QAN, QAN02, SRP

The largest weightings in the portfolio were:
ASX at 13.31%, CBA 17.18%, NAB02 13.06%, LLC 8.57%, WES 7.44% and SRP at 6.91%, so basically a third of the portfolio was top heavy.

Next page for same period shows the following in the portfolio: AIF, AMC ANZ, ASX, BHP, BWA, CBA, LLC, NAB, ORI, QAN, SRP, SUN, TLS, WBC showing ASX at 0.83% and NI as 20.57% accumulation return.

Next page same portfolio mix but shows a 23.33% return. The last two have a “hypothetical” column which does not show any actual trades. The first one had actual trades shown. “Actual” seems to be better than “hypothetical”!

I guess if you choose to “market” a structure that can and has done these returns it is not to be unexpected that investors may also be looking for these returns to be replicated!! and perhaps question why given similar market circumstances there is such a discrepancy!?!?!

Did we invest after this "marketing" presentation as to what we "could" expect from the fund, of course without any guarantees because we know that fund managers are not allowed to guarantee anything! All care, no responsibility.

If a fund went bust and the actual assets were quarantined by the trustee(!) that does not help because you may be locked in BHP at $30 at time of “bust” only to see it untraded retreat to $20 before the trustees unwound the assets!

I dont believe NI would go bust but given its "demonstrated" ability to outperform and achieve superior returns there are a few of us still waiting to these returns achieved and not satisfied with a "10%" figure which suddenly seemed to be quoted as a satisfactory return - no mention of this in "marketing" presentations.

 

Hi mate

I gotta disagree - I went 2 years in a row to Steve's Brisbane "Optimising Investment ... etc" course and he clearly said they aim for 10% and anything better was a bonus. Sorry, when I say I disagree I'm not disagreeing with what you heard or what was presented to you, 'cos I wasn't there - I just clearly remember a big emphasis on the conservative / 10 % income / mum and dad investors / $1,000 minumum / use property for growth / equity in shares for income thing, both years.

However I think the first one I went to might have been mid 2002, after that newsletter you mentioned - maybe the expectations were 'toned down' later ?

There was definitely good sales spiel in the presentation too, and there certainly wasn't any dwelling on potential risks or downsides ;-)
But I still believe the fund has done for me exactly what they said it would do, both in presentations and in private questioning of Steve.

Cheers
Carl

 

thanks for the great replies
Interesting that the FAQ on the website states

What is the expected return?
The objective is to outperform the S&P/ASX 200 Price Index by 5 to 10% per annum. We believe that this is possible using the NavraInvest investment management approach.

Certainly this is what the fee structure is relying on.
And obviously the funds have not been performing at this level

Are peoples expectations changing, both investors and in the management?
By adding in an ongoing fee - are they not expecting navra to ever perform at the above levels for the forseeable future

 

Will be interesting to see if it still says that in a couple of weeks Might tell us whether NI is looking at InvestEd or not

 

We're yet to see whether the fund can continue to produce the same returns in an market that isn't performing quite as strongly for an extended period. - that is the problem!!

As far as I can see the better quarterly returns have occurred in a strongly up market which is not supposed to be the optimum market for the fund to perform. If we have a continued period of a down market without any sharp up days to take profits the fund cannot make profits merely by sitting in stocks "waiting" for a resurgence. If you have several years of negative returns or a go nowhere market, there is no volitality and therefore no opportunity for the fund to trade - so what happens to investors returns then.

I put the scenario if you have used Steve's LOE formula and borrowed on your equity to invest and the fund returns negative, then you are in a position of having to sell down to cover your interest charges. At that stage you cannot continue to capitalise your interest as it will eventually blow your LVR and trigger a margin call. Now as others have suggested if the fund is a conservative one for mums and dads clearly the whole thing will unravel if we have a market stuck in the doldrums for any period of time.

Also, yes I attended Steve's presentations well before the launch of the fund, as did many others, and I still find it disturbing to be quoted higher expectations in the marketing material and then have a drastic reduction in expected returns in the form of a PDF based on the same trading methodology. After all we are relying on their printed material as to what the system was capable of, it is not based on our own interpretation of what the fund could theoretically produce once it was launched!!

As dkmc noted:

What is the expected return?
The objective is to outperform the S&P/ASX 200 Price Index by 5 to 10% per annum. We believe that this is possible using the NavraInvest investment management approach.
and this is from the website.

Second quarter return needs to be at least 4.75% ++, otherwise it would be better to switch your funds to more tax effective investments.

Also to include GTP in the portfolio breaks the rules of the investment criteria so it would be interesting to hear from NI how they justify its inclusion other than they were selling tree plantations schemes as a means of tax minimisation and perhaps wanted to support that company by including it.

 

Has anyone actually contacted NI about these types of concerns ? I think we would all know from past experience and endless posts on here, you won't get the answer unless you go direct.

For my part, whether the fund has outperformed the ASX or not, its still been returning the income promised. I could put my dough in other more 'tax effective' investments but so far I have still not seen many 'income funds' recommended, where the investment remains reasonably liquid and relatively low-risk (as far as I can tell anyway).

I realise the same income may not always continue, and I am also curious how it did so seemingly well in a market which is meant to be far from ideal for the NavTrade system.

In my (very) novice view NavraInvest is reasonably unique as a place for property investors to park spare equity in the sharemarket without needing to commit to long-term investments, make high risk decisions, or all those other nasties that come with shares for people who don't understand the market fully.


I'd like to see people seek the answers they need from NI and post them here so we can all learn. Really again, Steve would be doing us all a favour popping in here from time to time and spending some of his valuable time... I am sure he and the rest of us would get a lot from it.

Cheers and HNY
Carl

 

Carl two thoughts from me.

You might research index funds and ask yourself what a fund manager brings to the table. If they aren't alpha generators then what exactly are they doing for you?

Also you need to define how you view risk. Is risk a margin call, underperformance of the index, 50% draw down, 100% loss? It's very hard to go past an index fund for most definitions of risk I think.

 

Thanks Insight

I'm probably the definition of the 'mum and dad' investors NavraInvest was targetting as a key market.

I have tried direct investment, and through our super fund have some exposure to other funds, but in general find the sharemarket confusing, don't have the time or the inclination to learn more, and would rather concentrate on my business and property interests which I find marginally more interesting

My risk management probably leaves a lot to be desired ;-) - but I sort of view NI as having inbuilt risk management as far as the sharemarket is concerned.

The best way I have managed to explain my blinkered view of NI and its applicability to us was on Somersoft at
Why the Navra Fund - Page 7 - Somersoft Property Investment Forums - I'm pretty sure ( ) my thinking remains unchanged from then ...

To find another fund that will allow our investment to remain fairly liquid, only invested in very well-researched blue chips, with a conservative risk profile, and provide income on a quarterly basis, is something that would take more of my time than I care to invest ;-) It is on the To Do list though - for one day

Cheers!
Carl

 

So if there are concerns about the NI fund, I assume there are similar absolute return funds which are performing better, over the same or a longer time frame, and with consistency. For people to be unhappy with NI there has to be a better consistent long term performing fund - so who or what?

Absolute return funds provide an important link in the overall Navra structure - ie property, shares & cash - but it is only one part. I believe zeroing in on a single piece of the structure does not make sense. Yes you want to optimise performance but if you just did squats in the gym and had the best quads in the world, would you be a better swimmer? To me, I view it wholistically.