Accelerator Fund

Accelerator – The Managed Options Outcomes (MOO) Fund

Accelerator was my pride and joy – no doubt about it.

It was the singular investment that we should have run with since day one.

Forget Stock Broking, forget Financial Planning, all Freeman Fox should have done was this fund.

And then once we got the hang of it added funds with other mandates.

If I knew how easy* setting up a Managed Fund is I would have.

(*I only partly joke – setting up a managed fund is very difficult if you don’t know what you are doing but we could have figured it out MUCH earlier than we did).

Why?  Consider this: From 1995 to 2001 we had over 70,000 people attend our seminars – all of which were exposed to the Buy-Write strategy which was the mandate of the fund.

Heck the ASX even attributed me with popularising the strategy with retail investors.

Just about everybody was excited about the possibilities but not everybody had the $50,000 or so needed to get into the strategy at that point nor the time nor inclination to learn.

I think we could have had conversion rates of up to 30% of attendees.  At an average of $10,000 each that would have been $210,000,000 in funds under management.

That would have produced $2,100,000 a year in fees and $6,300,000 in broking revenue, and we could have achieved that with less than 10 staff.

Plus I could have managed the fund on my laptop from anywhere in the world. 

We would have gotten all the kinks out of our management system while the market was going up so whilst performance may not have been perfect it would have been forgiven.

Here is a copy of the XWB (Buy Write Index) chart from 2005 to today (August 2014) compared to the XAO (All Ordinaries Index).

*Source: Big Charts

Even if we had just tracked the index, at the worst point of the GFC in 2009 most of our clients would still have been in profit plus by now they’d be up over 60% from the darkest hour.

Do I need to say more?  An idea so obvious we couldn’t see the wood for the trees.

As it was Accelerator was the last of the managed funds we introduced and the timing couldn’t have been worse – just before the GFC.

Even so while I managed the fund we outperformed the index.

When I sold my shares in Excela I also sold the Management Rights to the Fund.   This is one of my greatest regrets of this business.

After the sale the mandate was changed and I am not aware of its performance.

 

Marketing

Our Marketing of the fund was a stellar success with a series of direct response TV commercials and a snazzy information package consisting of a 32 page booklet and a one hour documentary focusing on the strategy we generated 3,000 new enquiries.

 

What was Accelerator?

The Accelerator Fund was a managed fund.  It earnt income by investing using the Buy-Write strategy. It could provide investors with income and/or capital growth. It provided the option to generate monthly income and/or re-invest that income for a compounding effect.

Investors in the Fund had the opportunity to benefit from the high return potential and lower risk of the Buy-Write strategy without the need for significant start-up capital, significant training or spending a lot of time managing the investments.

What is a Buy Write strategy?

The Buy-Write Strategy is a simple, low risk investing strategy that Accelerator used to generate income through premiums, dividends and franking credits.

The fund buys a group of shares from the ASX 50 (the largest 50 shares by market capitalisation in Australia).  It then sells an option to buy those shares at a higher price than the buy price at a date in the future (usually about one month).  In return for the sale of that promise it receives an income called a premium.

Here’s a real-life example …

The BHP share price on 25 February 2009 was $29.69.

An Option with an Exercise price of $32.00 and a March expiry is selected at the end of March.

It is priced at $0.46*.

For every 1,000 shares held the fund would receive $460 (less broking costs).

That is a return of 1.55%.

If the share price rises above $32 the fund will sell the share at that price for an additional profit of $2.31 (less brokerage). If the share price stays below $32 the fund will keep the shares and repeat the process.

The strategy becomes unprofitable at a $28.39 share price.

* Source: IRESS

 

7 Key Benefits of Accelerator

 

  1. Aims to pay in excess of 1% per month on average – with $10,000 invested that would equate to $100 per month
  2. You don’t need to know anything about the share market to invest but you could get a similar return to an expert because it’s managed by professionals
  3. Start small – grow big – you can start with just $1,000 and $3 per day
  4. Passive – you don’t have to lift a finger – each month the income from Accelerator is automatically credited to your bank account
  5. You’ll start getting payments from the first month you invest and every month there after
  6. Is not dependant only on the market doing the work for you – it actively generates income through the strategy and can produce income even if the overall market is stagnant or flat, or goes down
  7. Helps to protect your capital if the markets experience a downturn because the income can be applied to loss reduction

 

Performance Issues

In 2012 I stopped managing the fund personally when the Board wanted to automate the process.  This made good, logical sense as it dealt with the “hit by a bus” factor and better standardised the outcomes.

We instigated a new, automated system of selecting shares and options in order to make the fund more appealing to institutional investors who value consistency and systems highly.

Extensive back testing of the system indicated it would outperform previous trading considerably, however with the benefit of practical experience there were a number of issues with the system and our implementation which saw a decline in the performance of the fund of 40%.

We implemented a number of “fixes” to the system which improved matters however the Board of Excela asked me to take back direct control of managing the fund.

Prior to the implementation of the automated system and after I took back control until the sale of the management rights to the fund I outperformed the benchmark index.

 

Specific Disclaimer

This publication is not investment advice.  It is intended for wide distribution and then only to inform and illustrate.

The information contained in this website is general information only and is not designed for the purpose of providing personal, financial or investment advice and no consideration has been given or will be given to your investment objectives, financial situation or needs.

No person, persons or organisation should invest monies or take other action on reliance of the material contained in this site, but instead should satisfy themselves independently (whether by expert advice or otherwise) of the appropriateness of any such action.

Any examples presented are for illustration purposes only. Returns may vary as a result of a number of factors including timing, market conditions and sentiment.  Actual results achieved in the market can vary considerably.

Past performance is not a reliable indicator of future performance.

Whilst all care has been taken in compiling the information and is provided in good faith, it is not to be relied on as a substitute for professional advice.

None of the information provided constitutes, and must not be construed as, an offer of securities or other financial instruments. Nor is it an invitation to you to take up securities or other financial products. Nor is it a recommendation to deal in any securities or other financial products.

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