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which managed fund?

Discussion in 'Managed Funds & Index Funds' started by Dunsborough, 13th Jan, 2007.

  1. Dunsborough

    Dunsborough Active Member

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    Hi guys
    forgive me if this has been done to death before.
    I am looking at using ip capital to invest in some managed funds, without being told to wash my mouth out in shame, why should i in invest in Navrainvest vs for instance much bigger aussie share funds like colonial etc.
    I have read about the quarterly distribution? but what else need i look at more closely?

    thanks everyone in advance
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    It really really really depends on a lot of things like your personal goals and needs.

    NavraInvest is good in that they are an income fund - they pay out income from trading profits quarterly, and should continue to do so (in theory - not really tested yet) in most markets. They invest in very blue chip shares which aren't likely to go bust (careful share selection), and can be considered to be a good "safe" investment option. You should get good reliable returns from the fund over time, but you aren't likely to get the spectacular returns that you see from other funds.

    One of the key aspects of the NavraInvest funds, which pay out all profits rather than reinvesting them for growth - is that the returns are "locked in" ... meaning that the x% distribution you got last quarter is yours to keep, regardless of what the market does next. Naturally, if you choose to reinvest it, you are then putting it at risk along with the rest of your holdings, but that's your choice to make.

    Other Australian funds rely on long term capital growth - and distributions are sometimes from realised capital gains, but mostly from dividends and such. If the market were to go south, you would see the value of your holdings fall with it - but you'd get that with most funds, including NavraInvest ... it's just that Navra should benefit from this due to it's contrarian action (buying when shares go down, selling as they go up).

    It's difficult to tell whether it would make much difference over the long term, and indeed over the past few years (where the market has been very strong), the Navra funds have lagged in performance compared to the ASX200 index and many more traditional pick-some-stocks-and-buy-and-hold funds.

    I have a significant investment in NavraInvest with the goal of funding my real estate holding costs (which is indeed one of the suggested uses of the fund by Steve), but I've also diversified into a few other funds which I feel will have much more potential for high growth. These other funds are likely to drop in value significantly during a strong or sustained market downturn, but I'm happy to accept that.

    One of the other benefits of NavraInvest is that they only charge a performance fee - so you only pay if they outperform the ASX200 index. At the moment they are struggling to do so (market hasn't been volatile enough to generate the high income returns they expect) and it's a small company who don't have infinitely deep pockets, so there is a chance they will be forced to move to a flat performance fee (like most other funds charge) which will likely be around 1.5% or so. They could choose to change back to a performance fee in the future though. The fees are outlined in the PDS for the funds.

    Things to consider when choosing a fund:

    - entry fee ... some funds charge up to 4% entry fee - which is totally unreasonable and unnecessary. Usually this is paid to your advisor, but even if you don't have an advisor, you are often charged this anyway. Don't pay it. If you use an advisor - either negotiate with them to minimise it or remove it altogether, or else find a discount fund broker who will rebate the entry fee. If you can afford it, wholesale funds are a good choice because they usually don't charge entry fees, and the ongoing management fees are usually less too.

    - exit fees. Not many funds charge this, and if they do, don't even consider them. In my opinion, exit fees are the most evil things out, are completely unnecessary, and should be avoided at all cost.

    - management fees. These are unaviodable, since the fund manager has to make their money somehow. Make sure you don't pay too much - choose a fund that has a reasonable fee structure. Watch out for flat fee + performance fee structures that are unreasonably high ... you may find yourself paying a large percentage of your gains out in fees. In general, if you don't understand the fee structure, don't invest in the fund !!! I find you can generally get into good funds for 1.5% or less. Index funds and other passively managed funds (that don't require a large team of people to manage) will generally charge much less ... usually less than 1% in annual fees.

    - Distribution is one thing to look at, but also try and get a feel for how those distributions are generated ... it may well be that the amount distributed is very volatile and dependent on good returns (you may get next to nothing in a bad year), so you might not be able to count on that money regularly.

    - Market segments ... make sure you understand the market the fund invests in ... if you have a fund investing in a specific market segment that is cyclical, then you could expect the fund to underperform for extended period until the cycle turns favourable again. You need to take this into consideration.

    - Index funds. One might argue that if NavraInvest can't outperform the ASX200 index, wouldn't you be better off investing in a cheap index fund ? Recently, the answer may well have been yes, but over the long term, the expectation is that the Navra funds will indeed outperform, especially when the markets are more volatile (more in line with long term averages, and not our abnormally strong almost-straight-up market like we've had over the last few years)

    Have you read the article on Dollar Cost Trading (in the Shares and Managed Funds article section) which explains how the Navra funds make their money ? It may help to explain the theory of why the fund should continue to do well - even with a market that isn't really performing.

    At the end of the day - it's entirely up to you ... I'm expecting a minimum of 10 - 12% annual return from the Navra AUS funds, and it is certainly achieving that at the moment ... but it is only one of 6 funds that I invest in.
     
  3. Glebe

    Glebe Well-Known Member

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    Sim,

    Can you elaborate please?








    Just kidding. I wanted to thankyou for the effort you put into answering people's questions. You're a great educator.
     
  4. -T-

    -T- Well-Known Member

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    ...and yours to be taxed!

    If you're not actually in need of cash inflows to support other growth investments, then I wouldn't necessarily go for an income fund.

    A capital growth fund will benefit you MUCH MUCH MUCH more in the long term if it performs the same as an income fund that distributes profits annually. Compounding returns on non-taxed, non-realised profits will lead to bigger and bigger gains each year. Taxing your returns each year just means you have less to compound new returns on. Additionally, there’s the favourable tax treatment of capital gains in certain cases (12+ months, etc.) and for those who aren’t as disciplined as a drill sergeant, maybe it’s better to keep your returns invested.

    I’m not trying to put across a negative message regarding the Navra fund/s, just adding the details to give a more rounded picture.
     
  5. TryHard

    TryHard Well-Known Member

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    LOL !!



    Ditto :)
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Very valid point ... in some circumstances, the Navra funds are not as tax effective as other funds ... you do need to take this into account based on your own situation.
     
  7. Dunsborough

    Dunsborough Active Member

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    Sim Thankyou Sincerely for that great explanation

    Since i posted message i have seen and read the managed fund article and understand more about navra
    The big thing i got from your posting is i will take careful note of distribution closely.
    Have been taking note with interest the december 06/ Jan 07 edition of Money Magazine titled "the best of the best" which looks at all the funds as well as everything as everything else you can think of.

    Thanks again
     
  8. islandgirl

    islandgirl Well-Known Member

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    I think T is raising a valid point which a lot of investors have not fully thought though. It is all well and good to ask which funds however you must first decide what you are trying to achieve. For me I am using the funds to generate income to pay for property investments which can generate a higher long term capital gain. If I wasn't interested in property I would use the funds to generate capital growth. Two vastly different approaches and the funds you would select would of course be different for each senario.
     
  9. Dunsborough

    Dunsborough Active Member

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    Hi Islandgirl

    Thankyou for your great points. In my particular case i have good growth (and remain confident will continue) from property and i have just ceased work for good at 47yo. Unfortunately i remain negative geared so i need some income to use as a offset, preferably fully franked.
    I also have a 14k tax loss sitting in the kitty from a share disaster years ago, so any small capital gains will also not worry me, in fact i welcome them in short term.

    Thank you again, and all guidance appreciated
     
  10. Here_To_Learn

    Here_To_Learn Well-Known Member

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    Dunsborough, we also use the Navra funds to fund the shortfall in cash from our property investments :)

    Long term we are hoping for good capital gains from our IP's.

    As others have mentioned ... if you are after capital gains then the Navra fund may not be what you need.

    Good Luck.
     
  11. TryHard

    TryHard Well-Known Member

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    I'm the same - a nice little loss sitting there from past indiscretions ;-) I always read any discussions about direct investment versus managed funds with interest. Some people talk about the potential greater gains and more control you can exercise with direct investment, but often forget to mention how easy it is to lose :p I felt like I shot my big toe off and was pleased to survive with only that amount of damage, altho was lucky to fluke a gain in one stock nearly as big as the loss in the other, otherwise I might still be living in the doghouse :)

    NavraInvest on the other hand has been a very pleasantly boring way to make money. It still seems to be one of the simpler to understand conservative income-based funds which support property investment activity easily, as you can get your dough out within a few days, and so far even in my worst run its still returning more than the interest rate i'm paying. Like others on here I'm keen to spread my wings and learn a bit more about alternatives, but I'm also of the mind 'if it ain't broke don't fix it' ;-)
     
  12. salsa

    salsa Well-Known Member

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    income fund

    Hi all,
    I have been following this thread with interest as I/we are also close to retire-able age (5 years to go). What if we salary sacrify our whole salary into super, and invest in income generating funds to fund our lifestyle/private expense (all from borrowed money of course using our property-equity). Is this too simple-stupid ? Any obvious holes you can see ?
    Apart from Navra what are some other income funds worth to look at ?
    Thanks very much,
    salsa
     
  13. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Have a look at the various property securities funds out there ... many pay quarterly and have reasonable distributions. Performance has been excellent for LPTs in recent years, although with rising interest rates, there is a question about how much longer the good performance can last.