Kuta Beach

Kuta Beach

Sunday, 14 November 2010

Aurora Property Buy-Write Income Trust

The Aurora Property Buy-Write Income Trust (ASX: AUP) is currently yielding about 10% per annum, which is very high. It achieves this by buying listed Australian real estate trusts and then selling call options on these securities to earn extra income. A portion of the income it earns from selling these securities are then used to buy put options for protection against price falls. This is a strategy that I am definitely unfamiliar with. Regardless of the strategy, the fund pays very attractive dividends. This is something I will strongly consider, even though this fund seems to have very high fees. It may be worth it consider the attractive dividends. It's worth a try.

Aurora Funds Management has a number of other investments, such as funds that employ a technique of dividend stripping on Australian equities, a fund that employs the buy-write strategy to global infrastructure, and a hedge fund called Van Eyk Alternatives Plus whose performance has been underwhelming, and a brief skim of this hedge fund's PDS reveals things like commissions for financial advisors. Most impressive of all, Aurora Funds Management has a fund (ASX: ABW) that pays 8.4 per cent and has been able to track the ASX200. It is able to track the ASX200 by using future contracts and other derivatives. An investment that tracks the ASX200 and pays dividends of 8.4 per cent is very impressive. Given that the ASX200 has average about 8 per cent over the long run and given that this fund's yield is 8 per cent, you are looking at potentially 16 per cent total return for this fund.

Below are Aurora funds listed on the ASX with their estimated yield (estimated by CommSec).

ASX TickerEstimated Yield (%)
AOD6.2
ABW8.4
AUP10.0
AIB8.4
VBP4.6

Like I said, I will consider these, but I do not like the high fees, and I'm not sure if I get any currency diversification. Aurora's funds, its investment strategy, and so forth have a Bernard Madoff feel to it, so some more reading would be necessary before I jump in. The great thing about these listed investments is that you can put a few thousand dollars in and if you are dissatisfied with the fund's performance (e.g. it pays low dividends) then you can simply stop putting more money in. If you feel like the performance is good you can put money in as you go. This control that I get from investing in listed securities is why I am pro-shares and anti-real estate. (When I talk about real estate I am talking about homes, not A-REITs.) If you buy a home, you are all in. The average house in Melbourne costs $500,000. If you decide to buy a house you borrow maybe $450,000 and then you are a slave to the bank for the rest of your life. You work like a slave to pay the mortgage and then when the banks raise interest rates you complain and complain. This is the typical behaviour of that breed of Australian known as the Aussie battler. As you can see I am passionately anti-debt, but that is not the main focus on this blog post, so I will hold my tongue. I have a tendency to drift to unrealted topics. The rant about the Aussie battler will have to wait until later.

No comments: