Thursday, 30 July 2009

iCap poses a challenge to active investors - Is it time for a re-think?

I started a new portfolio in October 2005. This coincided with the inception of iCap. closed ended fund.

Let us look at some data.

In Oct 2005:

KLCI was around 900

iCap NAV was $1.00 ($0.99 after deducting expenses)

23.7.2009 (after 45 months of investing = 3.75 years)

KLCI is around 1200, giving a cumulative total return of about 33% or a CAGR of 8%.

iCap NAV is $1.87, giving a cumulative total return of 86% or a CAGR of 18%. These are net of all expenses incurred by the fund. iCap in its latest report held 15.6% cash (41 m) with the rest invested in equity.

For the same period:

Savings in FD would have given a cumulative return of 15.84% at the generous annual interest rate of 4%.

My portfolio has a cumulative return of 45% or a CAGR of 10.4% for the same period.

Further observations:

At no period did the portfolio give a negative return, even during the recent severe bear market.

Of course, the return was very small at the depth of the severe bear market, threatening the loss of invested capital.

(However, as a long term investor, one can be comforted that the intrinsic value of the portfolio was definitely much higher than its market valuation.)

The time when the disparity between these two values of the portfolio was the biggest was also the best time to look for bargains. This called for courage and conviction on the part of the investor who has the capital to invest.

The cumulative total return of 45% for this portfolio, as of today, is made up of:
o dividend return of 12.2%,
o realised capital gain of 18.8% and
o unrealised capital gain of 13.9%.

Just like iCap, the calculations for this portfolio were based as if the investment was a lump sum at the start of the period (in reality, this was not the case), with dividends and realized capital gains reinvested. No cash was held in this portfolio, as this was the portion of my asset allocated to equity.

The Big Question.

Given the vastly superior performance of iCap closed ended fund, the question posed is: 'Should I continue to actively manage my own portfolio or should I turn into an even bigger investor into iCap fund?'

But then, this is a happy problem I can live with for a while yet.

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