Managed Funds Correlation between Navra fund performance and dividend distribution ?

Discussion in 'Shares & Funds' started by JustB, 13th Sep, 2007.

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  1. JustB

    JustB Well-Known Member

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    This may be a naive question, but is there a direct correlation between fund performance and dividend distribution?

    I ask this as I am having a plan drawn up by NFS, and was browsing the NI site looking at historical performance and dividend distributions, when I noted that for the January 05 - March 05 quarter, the fund performance was 0.71% while the dividend distribution was 4.15%.

    Does this align with the fund's intent to provide consistent income as priority over growth? Does the distribution come from the cash holdings, or from selling down shares?

    I couldn't find any further details on the NI site, but as someone who is interested in the fund solely from an income perspective to assist serviceability in holding negative geared IPs, I would be very happy with a fund that will provide that income regardless, even by sacrificing overall capital when the market is down.

    Can anyone shed more light?
     
    JustB, 13th Sep, 2007
    #1
  2. perky

    perky Well-Known Member

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    Hi Justb,
    Basically the fund trades throughout the quarter - hence the income being distributed.
    The fund will try and give a reasonably similar stream - however some qtr's will be more than others due to the amount of trading that goes on as the share prices go down and up.
    This quarter may end up being 0% growth - but due to lots of trading may end up returning 2% for example.
    The fund may also keep some of the returns from trading to be ditributed at the end of the year - such as last year when it distributed 9% for the 1st three qtrs - and a further 9% in the last qtr !!
    When it gives out a huge one like that - its best to keep a bit in reserve yourself in case the next qtr is not so good!!
     
    perky, 13th Sep, 2007
    #2
  3. Simon Hampel

    Simon Hampel Founder Staff Member

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    Further to what Perky said, the growth figure reported daily on the website is simply a reporting of the increase in net asset value of the fund. That net asset value is the combination of the value of all shares and cash on hand held by the fund.

    The value of the fund changes from two factors - the first being changes in the share value of the shares held by the fund, and the second being from increases in cash due to trading activities, dividends, and other sources of income like interest.

    The distribution comes from net income made by the fund. So while the fund may generate income from a variety of sources, the underlying share value may indeed fall - leading to a zero or negative overall return, whilst still actually distributing income. This is normal and almost all funds operate this way due to the way the unit trusts are generally structured.

    The distribution will in general come from cash holdings, since they will either be paid cash from dividends or interest, or they will receive cash as the proceeds from a profitable trade. In practice this may not always be the case and they may be forced to sell some shares to cover distribution costs ... (although distribution reinvestment helps here), but I wouldn't think it would be that likely.

    The fund doesn't "sacrifice capital", it makes no such decisions ... it merely trades the rise and fall of share prices and distributes the profits it makes. If the value of the shares means that total performance for the period is low or negative, then so be it - the focus is solely on trading for profit and distributing that to unitholders.

    (PS. I split these posts into their own thread to try and keep that other thread on topic as much as possible)
     
    Simon Hampel, 13th Sep, 2007
    #3
  4. JustB

    JustB Well-Known Member

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    Thanks guys for detailed breakdown, it makes my decision whether to invest in the fund as part of my overall strategy a much more informed decision. Much appreciated :)
     
    JustB, 15th Sep, 2007
    #4
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