RetireJapan

captainspoke wrote: ↑Tue Oct 11, 2022 8:19 am It took some searching:

Management Fees and Expenses:
2% per annum of the gross asset value of the Fund.

https://www.bannerassetmanagement.com/o ... come-fund/

Does this mean that if outhouse_critic has AUD 70,000 in that fund, the fund manager is charging AUD 1,400 (70,000*0.02) every year, regardless of the fund's performance?
If this is true, then it sounds... I don't know the correct word... "leechy"(?)

The latest information about this Banner fund (July 2022) I have is:

Started in Jan 2017
Minimum Investment: AUD25,000
Average Annualised Return: 9.26%
Total Cumulative Return: 52.50%
Average Expense Ratio: 1.3%
(the returns are net of fees and 10% Australian withholding tax)

I know this because they send me a PDF update each month in an attempt to get me to invest in it. It's a shame I can't attach the PDF here. I haven't bitten yet, though it's very tempting I must admit. The fund has never had a losing month (net of fees) since it started. And it invests predominately in "senior first mortgages to corporate entities", so is a good diversification to traditional equity and bond funds.

I don't know what other investments the OP (outhouse_critic) has, but if most of his money is in this fund then I think it makes sense to withdraw 120 man yen each year and invest it in NISA, to reduce tax and exchange rate risk, and increase diversification. Otherwise... maybe leave it as is? This fund does not seem bad at all to me, despite the high fees.

northSaver wrote: ↑Wed Oct 12, 2022 12:26 am The latest information about this Banner fund (July 2022) I have is:

Started in Jan 2017
Minimum Investment: AUD25,000
Average Annualised Return: 9.26%
Total Cumulative Return: 52.50%
Average Expense Ratio: 1.3%
(the returns are net of fees and 10% Australian withholding tax)

I know this because they send me a PDF update each month in an attempt to get me to invest in it. It's a shame I can't attach the PDF here. I haven't bitten yet, though it's very tempting I must admit. The fund has never had a losing month (net of fees) since it started. And it invests predominately in "senior first mortgages to corporate entities", so is a good diversification to traditional equity and bond funds.

I don't know what other investments the OP (outhouse_critic) has, but if most of his money is in this fund then I think it makes sense to withdraw 120 man yen each year and invest it in NISA, to reduce tax and exchange rate risk, and increase diversification. Otherwise... maybe leave it as is? This fund does not seem bad at all to me, despite the high fees.

May I suggest extreme causation? This is an offshore, unregistered fund.

Have you read through how they invest? https://www.linkedin.com/pulse/banner- ... r-reynolds

Have you thought about how this exposure might be a bit dangerous in the current economic environment? Have you calculated how much 1-2% in fees will scrape away from your investment over time?

outhouse_critic
, Cashout. Invest in a low-cost, diversified index fund in a NISA. That is my opinion.

For what it is worth, we actually had Trevor Reynolds on the old forum trying to promote this when they launched. My main takeaway is that he couldn't explain what the fund did and how it made money without using a lot of jargon. Some of our members work in finance and they were not at all satisfied with his explanation.

I'm gutted we lost the thread when we moved to this forum

But I agree at least a gradual diversification into tax-advantaged accounts in Japan and low-cost index funds might be good for OP.

TokyoBoglehead wrote: ↑Wed Oct 12, 2022 2:07 am May I suggest extreme causation? This is an offshore, unregistered fund.

Have you read through how they invest? https://www.linkedin.com/pulse/banner- ... r-reynolds

Have you thought about how this exposure might be a bit dangerous in the current economic environment? Have you calculated how much 1-2% in fees will scrape away from your investment over time?

outhouse_critic
, Cashout. Invest in a low-cost, diversified index fund in a NISA. That is my opinion.

Yes, I understand how they invest and am aware of the risks involved, especially in the current environment. This is why I haven't invested in them yet, though in hindsight - based on the returns - that was a mistake. And the fees are irrelevant if the fund is returning over 9% per year after fees with no monthly drawdown. That, my friend, is an investor's dream

But the point is that this is an alternative investment vehicle (comparable to peer-to-peer lending) and you certainly shouldn't have all your savings in it. Diversification is key, in my opinion, and this looks like a decent way to diversify some of your portfolio.

northSaver wrote: ↑Wed Oct 12, 2022 2:32 am

TokyoBoglehead wrote: ↑Wed Oct 12, 2022 2:07 am May I suggest extreme causation? This is an offshore, unregistered fund.

Have you read through how they invest? https://www.linkedin.com/pulse/banner- ... r-reynolds

Have you thought about how this exposure might be a bit dangerous in the current economic environment? Have you calculated how much 1-2% in fees will scrape away from your investment over time?

outhouse_critic
, Cashout. Invest in a low-cost, diversified index fund in a NISA. That is my opinion.

Yes, I understand how they invest and am aware of the risks involved, especially in the current environment. This is why I haven't invested in them yet, though in hindsight - based on the returns - that was a mistake. And the fees are irrelevant if the fund is returning over 9% per year after fees with no monthly drawdown. That, my friend, is an investor's dream

But the point is that this is an alternative investment vehicle (comparable to peer-to-peer lending) and you certainly shouldn't have all your savings in it. Diversification is key, in my opinion, and this looks like a decent way to diversify some of your portfolio.

I am all for REITs. But this fund is 100% Australian Risky mortgage debt. The fund has been active for 5 years, during a super super hot Australian real-estate market.

Interest Rates are Going Up
Mortgage Delinquencies are rising.


Many mortgages have not YET been hit by these rising rates, as they are locked in for a year or two more.

Can anyone here argue for keeping this fund? I say RUN.

I am wondering if low cost funds are not really a thing in Australasia, because my impression is that people in New Zealand also have mainly a selection of actively managed funds to choose from, with similar types of fees.

I was poking around to see what was available in that respect, but the best thing I saw was a site that was offering access to US ETFs - nothing much close to eMAXIS slim type super low fees. Maybe similar in Australia?

From a finance industry point of view, of course they would prefer to sell products to customers for higher fees, so they don’t have a great incentive to offer low cost offerings.

TokyoBoglehead wrote: ↑Wed Oct 12, 2022 3:08 am I am all for REITs. But this fund is 100% Australian Risky mortgage debt. The fund has been active for 5 years, during a super super hot Australian real-estate market.

Interest Rates are Going Up
Mortgage Delinquencies are rising.


Many mortgages have not YET been hit by these rising rates, as they are locked in for a year or two more.

Can anyone here argue for keeping this fund? I say RUN.

You make some good points mate. I also thought I made some good points to Chris Cleary from Banner back in 2018. This is what I said:

"It has been great the last eight years, but there are downside risks going forward I think:

1. The Australian housing market is looking weak, which might lead to less loans and more defaults.
2. There is a risk that defaulted loans will exceed the collateral if the drop continues.
3. There is downside risk to AUD/USD due to USD rate hikes and the trade war with China.
4. A Chinese slowdown will impact the Australian economy too (in fact the world economy, but especially Australia).
5. The high expense ratio of the fund will exacerbate the diminishing returns.

In short, the last eight years were an ideal period for this kind of fund. The next eight years may not be as smooth."

By the way, we were talking about the main fund based in Australia which started in 2010 and had 2% AER. The cheaper retail version based in the Isle of Man started in 2017.

He countered my points admirably but I decided not to invest. The fund continued to do well and then COVID-19 came and I thought, "Phew, it's really going to tank now!". It didn't. Now there are higher interest rates and a looming debt crisis. There always seems to be something to worry about that makes this type of investment unattractive

I like what RJ said in the other thread:

"Every time I have tried to do something clever based on my reading of what might happen in the markets I have gotten it completely wrong and lost money "

Yep, that sums it up nicely. I'm slowly learning that it's better not to overthink it when it comes to investing

northSaver wrote: ↑Wed Oct 12, 2022 5:37 am

TokyoBoglehead wrote: ↑Wed Oct 12, 2022 3:08 am I am all for REITs. But this fund is 100% Australian Risky mortgage debt. The fund has been active for 5 years, during a super super hot Australian real-estate market.

Interest Rates are Going Up
Mortgage Delinquencies are rising.


Many mortgages have not YET been hit by these rising rates, as they are locked in for a year or two more.

Can anyone here argue for keeping this fund? I say RUN.

You make some good points mate. I also thought I made some good points to Chris Cleary from Banner back in 2018. This is what I said:

"It has been great the last eight years, but there are downside risks going forward I think:

1. The Australian housing market is looking weak, which might lead to less loans and more defaults.
2. There is a risk that defaulted loans will exceed the collateral if the drop continues.
3. There is downside risk to AUD/USD due to USD rate hikes and the trade war with China.
4. A Chinese slowdown will impact the Australian economy too (in fact the world economy, but especially Australia).
5. The high expense ratio of the fund will exacerbate the diminishing returns.

In short, the last eight years were an ideal period for this kind of fund. The next eight years may not be as smooth."

By the way, we were talking about the main fund based in Australia which started in 2010 and had 2% AER. The cheaper retail version based in the Isle of Man started in 2017.

He countered my points admirably but I decided not to invest. The fund continued to do well and then COVID-19 came and I thought, "Phew, it's really going to tank now!". It didn't. Now there are higher interest rates and a looming debt crisis. There always seems to be something to worry about that makes this type of investment unattractive

I like what RJ said in the other thread:

"Every time I have tried to do something clever based on my reading of what might happen in the markets I have gotten it completely wrong and lost money "

Yep, that sums it up nicely. I'm slowly learning that it's better not to overthink it when it comes to investing

I appreciate the back and forth. Great points. it's been quite a bull run. But, rising rates, and mortgage defaults are a reality

I would say the decade of cheap debt is over. This fund is pretty explicitly investing in loans and mortgages that banks wont or can't touch.

....

Regardless I think the fee drag is understated. Allow me to show the true horror here. (Assuming a generous 8% over 30 years).

If you cash out now, you'll incur the 20.315% Capital Gains Tax, before you can reinvest.
But, you can only invest Y1.2M in NISA this year, and Y1.2M next year, and Y1.2M the year after that, and so on...
Assuming your 70,000 AUS dollars Present Value, assuming a gain of about 48% (see below) you would be left with about Y5.8M after taxes.
It would take you over 5 years to invest the post-tax funds from this back into NISA, but this would be Post-Tax and so would not increase as fast as it will if you leave it where it is...

You would need to withdraw AUD70k / 5 = AUD 14k per NISA Year in order to cover the Capital Gains Taxes due and have the Y1.2M to input into the NISA, but the remainder would continue to grow if left in the fund, probably adding up to another half year of NISA contributions...

You would have to report the Capital Gain in your Kakutei Shinkoku Tax Filing in March of the year following the liquidation.
Form B - Page 3 - 第三表.

I have been considering this or some time. I am NOT affiliated in any way with the fund.

They are not a REIT. They are a Commercial Mortgage Lender; "Senior first mortgages to corporate entities".
They are not a Retail Mortgage Lender, and so are not exposed to retail mortgage interest rates or defaults.

This is nothing like any of those Offshore Bond Wrapper funds and financial advisors...

They lend money in AUD to Developers to fund their Development Projects in Australia at higher commercial Interest Rates, fully collateralized by the Development Project Real Estate at a very conservative Loan to Value ratio. So they have a large margin of safety, and therefore low risk.

The Development Projects are sold off-plan to customers who put down a considerable deposit. Ebisu lends the shortfall funds in AUD to the Developer to complete the Project and then get paid interest and get paid out in full when the customers pay up in full for their properties at Project Completion.

Projects usually last about 2 years, and then they roll over the funds into the next project loan, until the investor liquidates fund units and withdraws funds.

They are not exposed to the stock market, or the profitability of the projects.

Japan takes an Introduction Fee (Load) on new investments to cover the admin costs and commissions.

The Ebisu Fund then takes an annual Management Fee.

They have returned, net of fees and Aus Withholding Tax on the Interest Income, close to 10% per year on the AUD for life of the fund.

The Exchange Rate will have also produced a return depending on the TTS exchange rate at the time you invested to TTB of Y90 to the AU$1 today.
(Obviously variable, but Oct 2018 TTS was Y82...)

The Capital Gains Taxes will be calculated as follows:

Investment Amount in Yen / TTB at investment - AUD Amount received x TTS at Liquidation - any Transaction Costs = Capital Gain in Yen

This Capital Gain will then be subject to 20.315% Capital Gains Taxes (15% National, 0.315% Reconstruction, and 5% Residents' Taxes)

So, in 4 years the return would be (1.1)^4 growth x 1.01 forex -1 = 47%

After Tax 47% x (1 - 0.20315) = 47% x 0.79685 = approx 38%

After Tax (1+38%)^1/4 = approx 8.4% Net per annum.