Distributions in Navra Fund

Maybe one for Steve, but if anyone else can clarify too that would be good.

I had someone ask me today some detailed questions about how the distribution is calculated and I found I still had a couple of questions.........

Let's say for arguments sake that we start on the first day of a new Quarter when the last distribution has just been paid. The nominal value of the Fund at this date is say $100mil.

Ok......after almost 3 months:
1. The trading(buying low/selling high) has generated an additional 2.5%($2.5mil) in profits

2. The Fund has received about 0.75% ($750K) in Fully Franked Dividends.

3. The Fund has received about $250K in interest on the average 20% ($20mil) cash held for the Quarter.

4. The value of the unsold shares in the Fund has also grown at 1%($1mil)


Questions:
1. Does the 'Quarterly Distribution' paid out to Unitholders in Cash(forget about reinvestments for now) only include (1) above or does it include (1), (2) and (3)? ie. do the dividends received get paid out in cash Quarterly too or do they simply go back into the Fund and are reflected in a higher Fund Unit Price? If the Dividends went into the Fund rather than being distributed each Quarter, then Units would presumably need to be sold to obtain this component?

2. While I understand that an Income Fund is required to 'pay out' all profits to Unitholders each year, is it totally at the discretion of the Fund Manager how this is paid out in all but the final Quarter? For example, as some Unitholders may need a reasonably regular flow of funds for interest payments/living expenses etc, up to a point, would the Fund generally try to 'hold back' some parts or early Quarterly Distributions to ensure that a reasonably regular payout is maintained all year round?

3. I would think there would be some profit made on the Buy/Sell spreads too. I presume this isn't included in the cash distribution component. Does it go back into the Fund to be reflected in the Unit Price?

4. If the Retail Fund were to declare a 5% Quarterly Distribution and a Unitholder held $100K in Units, it's my understanding that the Cash Distribution paid would be a bit less than $5K. Can you give an example of what components make up the 5% Distribution?

5. When looking at what comprises most of the Fund Investment Return, would it be true to say that this primarily comes from a) profits made on share trading b) dividends received c) interest earned on cash held and d) growth in currently held shares? Have I missed anything?

6. Are Franking Credits received passed on at the end of the Financial Year?


Thanks Steve and/or others.

Hi Al,

Thank you very good questions . . .
Sorry to stall, but I am in Canberra and seeing very many people per day in the limited time I have here.

I will give a full response to this topic within the next few days

Thanks for your anticipated patience,

Steve

No worries Steve........when you get a chance.

Answer:
Total distributable income is from items 1, 2 & 3. There is no distinction or quarantining of the different sources of income. So dividends received form part of the distributable income.




Answer:
To be precise, the Fund distributes its net taxable income, not profits. At the end of each of the first three quarters, the total accumulated distributable income to the end of each quarter may not be fully distributed. The reason is to keep some income in reserve for future quarters, especially the final fourth quarter in case no more distributable income is generated during any quarter. This situation could arise as a result of active trading generating realized capital losses that will reduce the accumulated distributable income. Also, we are aiming to keep the distributed income reasonably equal between quarters. We aim to pay a minimum quarterly distribution of 2.5% consistent with our stated objective to generate a minimum annual distributed income of 10%, but these figures are not guaranteed. At the end of the financial year, all distributable income must be paid out.



Answer:
There is no profit made on the buy/sell spreads as they are designed to cover the transaction/administration costs of buying and selling shares and to protect the equity of unit holders who are not transacting. The buy/sell spread does not form part of the Funds’ distributable income.




Answer:
The actual calculation of the payout percentage of a distribution is according to the difference between total fund return against total capital gain on the day of distribution (which is according to the industry’s general practice laid out by ISFA). So it may vary slightly when translated into dollars.
The components are as noted above.



Answer:
In order of magnitude: a), d), b), c) You missed nothing!



Answer:
Yes.



Good questions Alan I hope that makes things a bit clearer.

Regards,

Steve

Thanks Steve........that explains things nicely.

Steve, from reading this post I now understand the components that make up the distribution.

Silly question but I'll go ahead and ask anyway to be clear ...

If I look at today's site it shows the wholesale fund with a 6.71% net return. Is there anyway of determining what % is CG vs income at this point in time now ?

Or

Do we simply sit tight and wait for the quarter results announcement ?

I guess I am trying to be more active in understanding the performance of the investment rather than just seeing one number and not knowing how much will be income vs CG each quarter.

Hope this makes sense.

Thanks !

Realise Steve is no doubt flat out.

Does anyone else want to have a go at answering my question above ?

I believe that NavraInvest don't publish the income-to-date because it might not all be distributed at the end of the quarter. They sometimes hold a bit of distribution back to ensure that the income throughout the year is fairly consistent - if one quarter has lower than normal income (due to trading losses and such), then they would use some of the undistributed income from previous quarters to increase the distribution and smooth out the overall income. Of course, all income is distributed at the end of the financial year.

What might be interesting to see is a "year to date" income figure calculated daily. Not sure if there are any ramifications of showing this type of information - perhaps it's not technically feasible.

Steve - comments here ?

It's also my understanding that even though the fund might have earned a distribution as the quarter proceeds, it is not necessarily guaranteed. For example if after 2 months, the fund held a 4% distriubution but then the market crashed, that 4% would be used to purchase shares on the way down (as is the fund's trading style). If the market hasn't rebounded by the end of the quarter, there will possibly be little or no distriibution available.

Hi there,

Sorry still a bit flat chat . . . until the share offer closes mid month.

Your comments above are all partly correct:

Mainly though the distribution can change in certain market conditions.

Current Example:
06-Sep-05
YTD NIASRF 7.07%
Performance ASX200 4.31%

As at tonight’s close the fund has performed at 7.07% since the beginning of July.
The realised profits as at today are at approximately 5.10%

So at this stage I expect a minimum distribution of 3.5% for this quarter. (Yes Sim' is correct, we may hold a bit back . . . so as to keep the quarterly amount reasonably uniform.) Most investors have an expectation of 10% income per year, or 2.5% per quarter. So anything in excess of this per quarter is bonus. At the end of the financial year any accrued excess will of course be paid out.

If the market declines, the excess is not used to buy more shares!! (Realised profit remains realised.) However, if the market does decline and we purchase (obviously) more shares because there is value in buying cheaply, then on the next increase we might initially realise some losses on selling on the up. These realised losses will offset and reduce the realized profits that were held in excess.

It is unlikely that this will actually occur

It can only happen when a market decline occurs just prior to the end of a quarter and then the initial increase does not put the sales into a positive realised profit situation at quarters end. Unlikely, but never the less we do cater for the possibility of the occurrence.

I am all for the maximum distribution each quarter . . . it suits my personal lifestyle

Regards,

Steve