Managed funds

[Stoploss]

Discovery funds up 9.3 percent for November. Now up 51 percent in 14 months since inception.

What a result.

Cracked the +60% since inception 

[Shareguy]

Cracked the +60% since inception 

One of my best decisions was giving them more money this year. I caught up with Chris and Mark recently and thought next year will be good too. How good who knows. Certainly don't expect this level of growth to continue. Now have $115m under management.

[Basil]

Congrats Shareguy.  Brilliant performance for the Discovery fund.  Might throw them a bone early in 2024 if I can get my head around their fee structure, 2% base fee and 20% performance fee is to the best of my knowledge right at the extreme top end of the industry.  20% performance fee in particular doesn't sit comfortably with me, comes across as greedy.  That said, if you can stomach their fees, then so far their performance has been outstanding. 

Changing gears, had a good robust discussion about the merits of Fisher's funds Barramundi in particular yesterday with Mos yuesterday and like many others, at face value its easy to be less than impressed with their overall return when they listed in 2006 at $1 and their NTA is currently about 73 cents. 

The interesting thing I discovered in the process of that debate was the initial performance (with different investment staff at the helm) over the GFC period was shocking and they really got belted over the GFC with the share price collapsing to a low of 35 cents in Feb 2009.  As I stated yesterday, it all depends on what your starting point is with investing in them and I came along later in the game and have enjoyed some fabulous gains, not the least of which by any means have come from the 8 different warrant issues they've had over the years and trading some of those has been very rewarding. 

I also noted their sliding scale fee structure such that if they underperform their base fee can go as low as 0.75%, something I believe no other investment manager does.   I've talked about their 2% per quarter tax free PIE distributions already and why I like them and that's also a distribution policy that's unique to that group.  There performance fee was reduced from 15 to 10% a couple of years back from memory and seems reasonable.

There was also a brief discussion about Marlin and a couple of little things I want to highlight there.
Firstly, a little-known fact is that superannuation funds and portfolio investment entity (PIE's) are exempt from the punitive CFC and FIF tax regimes so they have a real tax advantage compared to a DIY approach which some of my clients use which costs them a lot of money with compliance costs as well as the 5% deemed dividend and tax thereon.

Secondly, although on the face of it this fund has not performed that well, listed in 2007 at $1 and NTA is about 92 cents, on reflection it could not have listed at a worse time and it's worth noting as a result of the GFC by Feb 2009 the share price had ~ halved.  If you take that as your starting point the share price has nearly doubled as well as 8 warrant issues and the aforementioned 2% per quarter distributions.
https://marlin.co.nz/investor-centre/portfolio-performance/    I note they have also beaten the index by which they measure the fund against over the years.

My contention is a pretty simple one.  The funds fees are reasonable relative to other funds, (for example Mike Taylor's PIE funds are a flat 1.85%) and not only are the fees reasonable they are beating the index over the long run if you exclude the period where they got hammered in the GFC just after they floated.

Their distribution policy is unmatched in the industry and if you're buying into their funds at a  discount to NTA the 8% net PIE dividend can in fact be as high as 8.8% net (if bought at a 10% discount to NTA like I was buying BRM at last week).  8.8% Net is worth 8.8 / 0.67 = 13.13% gross to me as a 33% taxpayer, (actually more because if it weren't for these funds I would be in the punitive 39% tax bracket), but let's stick with 33% as that's what I think applies to most on here, and if you take shares in lieu of dividend under the DRIP at a 3% discount that gross return becomes 13.13 / 0.97 = 13.54%.

In conclusion I think KIngfish's various funds are ideal for those looking for diversification, very high yield and those like me looking to do less investment analysis themselves in the years ahead.

Discussion point.  What other managed funds are you investing in or considering investing in next year and why do you like them?

[Red Baron]

Firstly, a little-known fact is that superannuation funds and portfolio investment entity (PIE's) are exempt from the punitive CFC and FIF tax regimes so they have a real tax advantage compared to a DIY approach which some of my clients use which costs them a lot of money with compliance costs as well as the 5% deemed dividend and tax thereon.

I zuzpect that thees 'vact' eez little known, because eet eez not true!

Yes there are no 'FIF paper vars' to deal vith vor 'superannuation fund and PIE' unit holders.   Unit holders do not need to vorry about FIF, because eet eez all dealt vith behind vund managers closed doors, and there are no taxation consequences of that passed through to unit holders.   But to imply FIF does not apply because there is a special exemption vor 'superannuation fund and PIE' managers?   That vould not be vright.

RB

[Red Baron]

Discussion point.  What other managed funds are you investing in or considering investing in next year and why do you like them?

Vot about the global vund run by thees guy, Nicholas Bagnall.   Ex-ACC fund manager of 26 years employment who has gone out on his own.  Yet ACC still trusts heem to manage money vor them.

https://teahumairangi.co.nz/

Vhy like them?

-------------

Avoid unnecessary cost

We are very aware of how much value some other fund managers can destroy through unnecessary costs. These include: inefficient tax structures (such as buying foreign ETFs which incur taxes on foreign dividends, which cannot be offset against the tax obligations of NZ investors); excessive transactions costs caused by fund managers placing orders that represent large percentages of average daily volumes; washing all cashflows back to US dollars on a daily basis (such that they will cross foreign exchange spreads twice if they buy and sell securities in the same currency a couple of days apart); and paying unnecessarily high commission rates. At Te Ahumairangi, we will endeavour to do our best to minimise or avoid all of these costs, in addition to charging clients reasonable fees.   (Fees are 0.62% per annum (including GST), and we won't charge you any performance fees on top of that.)

Maintaining a modest risk profile

We believe that investors and fund managers often under-appreciate the importance of risk, and a pursuit of higher returns often leads to funds and portfolios being skewed towards those companies that are likely to fall the hardest in the event of a market downturn. Because of this investor blindness to risk, there is strong evidence that low and medium risk equities have historically produced at least similar returns to higher risk equities. We try to always invest the majority of the funds we are responsible for in equities that have low to average risk, as we believe that this approach is likely to produce a better reward-for-risk ratio for our investors.

------------------------

Thees global vund has only been going for two years zo var, but has produced a large outperformance of 'Vive perzentage points' per year seence November 2021.

RB

[Basil]

I'm sure I have read they are exempt but I am not going to go trawling through the IRD website at this time of year to find it. 
Super enthusiastic about the Te Reo name so I had a look at their performance for November 2023 and, alas, it was less than 1% when Global markets were absolutely booming.    Really underwhelming.  Surely that fund is not deeply mired in B Corp and ESG nonsense too?
https://marlin.co.nz/assets/Investor-Centre/Marlin-Monthly-Update-December-2023.pdf
Marlin up 7.5% for November.  For the last year Marlin have also outperformed them.
Thanks, but I'll pass.

[Shareguy]

Congrats Shareguy.  Brilliant performance for the Discovery fund.  Might throw them a bone early in 2024 if I can get my head around their fee structure, 2% base fee and 20% performance fee is to the best of my knowledge right at the extreme top end of the industry.  20% performance fee in particular doesn't sit comfortably with me, comes across as greedy.  That said, if you can stomach their fees, then so far their performance has been outstanding. 

Changing gears, had a good robust discussion about the merits of Fisher's funds Barramundi in particular yesterday with Mos yuesterday and like many others, at face value its easy to be less than impressed with their overall return when they listed in 2006 at $1 and their NTA is currently about 73 cents. 

The interesting thing I discovered in the process of that debate was the initial performance (with different investment staff at the helm) over the GFC period was shocking and they really got belted over the GFC with the share price collapsing to a low of 35 cents in Feb 2009.  As I stated yesterday, it all depends on what your starting point is with investing in them and I came along later in the game and have enjoyed some fabulous gains, not the least of which by any means have come from the 8 different warrant issues they've had over the years and trading some of those has been very rewarding. 

I also noted their sliding scale fee structure such that if they underperform their base fee can go as low as 0.75%, something I believe no other investment manager does.  I've talked about their 2% per quarter tax free PIE distributions already and why I like them and that's also a distribution policy that's unique to that group.  There performance fee was reduced from 15 to 10% a couple of years back from memory and seems reasonable.

There was also a brief discussion about Marlin and a couple of little things I want to highlight there.
Firstly, a little-known fact is that superannuation funds and portfolio investment entity (PIE's) are exempt from the punitive CFC and FIF tax regimes so they have a real tax advantage compared to a DIY approach which some of my clients use which costs them a lot of money with compliance costs as well as the 5% deemed dividend and tax thereon.

Secondly, although on the face of it this fund has not performed that well, listed in 2007 at $1 and NTA is about 92 cents, on reflection it could not have listed at a worse time and it's worth noting as a result of the GFC by Feb 2009 the share price had ~ halved.  If you take that as your starting point the share price has nearly doubled as well as 8 warrant issues and the aforementioned 2% per quarter distributions.
https://marlin.co.nz/investor-centre/portfolio-performance/    I note they have also beaten the index by which they measure the fund against over the years.

My contention is a pretty simple one.  The funds fees are reasonable relative to other funds, (for example Mike Taylor's PIE funds are a flat 1.85%) and not only are the fees reasonable they are beating the index over the long run if you exclude the period where they got hammered in the GFC just after they floated.

Their distribution policy is unmatched in the industry and if you're buying into their funds at a  discount to NTA the 8% net PIE dividend can in fact be as high as 8.8% net (if bought at a 10% discount to NTA like I was buying BRM at last week).  8.8% Net is worth 8.8 / 0.67 = 13.13% gross to me as a 33% taxpayer, (actually more because if it weren't for these funds I would be in the punitive 39% tax bracket), but let's stick with 33% as that's what I think applies to most on here, and if you take shares in lieu of dividend under the DRIP at a 3% discount that gross return becomes 13.13 / 0.97 = 13.54%.

In conclusion I think KIngfish's various funds are ideal for those looking for diversification, very high yield and those like me looking to do less investment analysis themselves in the years ahead.

Discussion point.  What other managed funds are you investing in or considering investing in next year and why do you like them?

Great post Basil. Yes Discovery's fees are high, but then again a 60 percent return after all fees and expenses soon makes you accept the higher fees. With that level of return they deserve it in my opinion.

Speak to my brokers on a regular basis. They are of the opinion that Australia is where it's at. Small and mid caps on sale. If you have a look at Discovery's monthly update you can soon see where the money is being made.  Chris and Mark concentrate on only 20 stocks with a max of 10 percent of the fund to any one stock. Pie funds is starting to improve but they have a long way to go.

[Stoploss]

Stop the press....Discovery + 1.6630 since inception ( Sept 28 2022)
Basil I don't get the hang up with fees . As with anything you have to pay for the best .
It's all about the Net at the end of the day .

[Basil]

Yes those young guys are off to a fabulous start with their fund, no question about that and I am sure December will be a strong month for them too with the ASX well up month to date.

Will consider in the new year but at this stage I am taking advantage of the big discount to NTA on offer with Barramundi, currently 9-10% discount to NTA so the bang for buck is awesome and underwritten by the fact the fund can buy its own units back at a 6%+ discount to NTA.  They also had a stellar month in November, up 7.9% and up another 7.1% month to date in December according to my spreadsheet of their portfolio I updated 15 minutes ago.  (Current estimated NTA 73.90 cps, current share price 67 cents = multi year high in terms of discount to NTA which is completely unwarranted in my opinion).

Edit, just saw your post Shareguy and yes as expected, December to date has also been good for them as well as for Barramundi as noted above.
Ringing in my head is the sage advice of an old hand in the fund manager business I saw once on CNBC, (sorry forgot who it was), but he basically said the real test for new funds is year 3.   In the first 2 years they deploy a lot of cash into sometimes illiquid stocks and that can see the NTA shoot up a lot.  Year 3 is much harder and sometimes very difficult for them to exit small cap stocks that have not measured up to expectations. 

To be quite honest about it I'm quite reluctant to chase the overseas markets right at the moment after a stellar Nov / Dec, (US market up 7 weeks in a row) unless a very well proven fund is trading at a steep discount to NTA such as in BRM's case at this point in time.    If BRM were trading right on NTA rather than a circa 10% discount, I wouldn't be buying today like I was.

[Red Baron]

I'm sure I have read they are exempt but I am not going to go trawling through the IRD website at this time of year to find it. 

Maybe zees page?
https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-income/foreign-investment-funds-fifs/foreign-investment-fund-rules-exemptions

"Foreign investment fund rules exemptions"
"Foreign superannuation schemes"
"Tax treatment if an exemption applies"

Ze problem eez such an exemption means *you* vere not an NZ taxpayer vhen you enrolled in ze foreign siperannuation scheme.  IOW 'foreign' een zees context means "you" vere the foreigner.  Not ze different context of you being an NZer investing your money into a 'foreign' market.

RB

[Basil]

No it wasn't in there mate, saw that earlier today.  I flicked a link to a client earlier this year with the info...I'll need to dig that email out in due course if I can find it, probably be after Christmas sometime.  Been too busy buying Barramundi today.

[Red Baron]

Super enthusiastic about the Te Reo name so I had a look at their performance for November 2023 and, alas, it was less than 1% when Global markets were absolutely booming.    Really underwhelming.  Surely that fund is not deeply mired in B Corp and ESG nonsense too?

I theenk you mees ze point. It eez not about how a vund performs over a zingle month.  Sure the NASDAQ vas up 8.9% over November 2023, while the DOW vas up 8.0%, vhile the gain at Te Ahumairangi vas a mere 0.97% over that month.

But svitch ze comparizon to two years and ze picture eez very deeferent.  NASDAQ -4.0% per year, DOW +0.7% per year, Te Ahumairangi +11.3% per year.    Massive outperformance by Te Ahumairangi.

You can get higher returns over zhort timefranes by trading high Beta FANG stocks of course.  But zees is not how Te Ahumairangi vorks.  It eez an entirely deeferent outlook and ztrategy to ze FANG chasers.

RB

[Basil]

I didn't have a look at 2 year performance so thanks for highlighting that.  Will have a proper look after the silly season is done and dusted.  Hard to see past the BRM situation at present with the fund going up at 7%+ per month and trading at ~ 10% discount to NTA. 

[Shareguy]

We have our family's kiwi saver currently with Fisher funds. Not very impressed with their performance. Looking at their share picks they seen to me not to be active fund managers. It's more of a case of buying a stock and holding it and hoping for the best. What ever they are doing it's not working. Hope they have a different strategy for BRM.

[Basil]

Couple of things.
Watching CNBC this morning according to them Russel 2000 small cap index up 21% since October.  WOW...this is an index move, no brilliance in stock picking is required.  I imagine its similar for small caps in Australia.

Talk was all about how small caps have moved from stupid cheap value to now be fair value and most of the gains from the potential cuts the market is hoping for in 2024 have been priced in at the point of the pivot, (i.e. the point in the couple of months where the market believes the Fed moves from tightening monetary policy towards looking at easing in the future)  The market firmly believes the Fed is done.

Several commentators now thinking the market has got slightly ahead of itself here and cautioning about applying fresh capital at this point, i.e. the seasonal period of strength is coming to an end...but we could still get "the January effect" so who knows.

I woke early this morning and did some hard core number crunching on BRM over the whole of the last decade to really drill down and see what the market thinks, (not what Mos or I think) as to whether it should trade at a premium to NAV or a discount and gathered the following data, summarized below from 120 end of month data points and converted this to yearly averages.  In the various years noted below on average the shares traded at a (premium) to NAV or a discount as follows
2023 this far (0.1%) premium
2022 (13.3%) premium
2021 (20.1%) premium
2020 (5.5%) premium
2019 8.9% discount
2018 9.1% discount  (Robbie Urquart replaced Frank Jasper as lead investment manager mid year)
2017 6.8% discount
2016 7.9% discount
2015 5.7% discount
2014 8.5% discount

Average for 10 years 0.65% discount to NAV.

Observations. 
The level of discount has been minimal overall and has traded at an average premium under Robbie Urquart's management of (6%) and an average discount of 7% under the former manager Frank Jasper.

I do not believe overall a premium or discount is warranted.  You couldn't own this stock in 2021 or 2022, the premium to NTA was too high.

It hasn't traded as high as a 9%-10 discount, (what I have been very busy buying at in the last couple of weeks), to NAV since October 2019 more than 4 years ago. Buying at a significant discount to NTA leads to higher overall returns, I posted the gross yield yesterday.

Finally - This is an income stock.  (Those wanting capital gains should look elsewhere OR reinvest all their dividends each quarter.  All the return in the last decade has been paid out with the 2% tax free dividends per quarter and the value of the multiple discounted warrant issues. Over the last decade the NAV has barely moved overall, was 75 cents in Dec 2013 and I estimate 74 cents yesterday. Taking into account the value of the warrant issues I estimate an average 10% annual tax free return, (you can increase this to nearly 11% average tax free if you buy close to a 10% discount to NTA).  BRM claim they have beaten the ASX index based on 70% hedged to $N.Z after fees and tax by more than 3% per annum average over the last 5 years under Robbie Urquarts leadership.  I have no reason to doubt their claim.
I expect the ASX to considerably outperform the NZX for the foreseeable future.
Disc: Substantial positions in BRM shares and Oct 2024 warrants

P.S. Possibly worth noting that the company changed its share buy-back policy from being eligible to undertake a buy-back, the shares must be trading at an 8%+ discount reducing this to 6%+ a few years ago.  They haven't bought any shares back in many years, but the stock is currently trading at such a discount level it makes a share buy-back a real possibility in the near future if market forces don't reprice the shares itself.