The Oil and Gas sector is prone to intense cyclicality.

Oil and Gas sector

Commodity prices (oil) are cyclical, as are the sector's profits.

The energy sector is prone to intense cyclicality.

Small changes in available supply and market demand tend to have an oversized effect on commodity prices and profits.

However, neither cyclical peaks nor valleys tend to last very long.   It is important to realize this before investing in the sector. Otherwise, you might be tempted to sell when the sector is doing relatively poorly (when things are about to begin looking up again) or buy at the peak when the companies are reaping a windfall (when growth is about to go into reverse).

It is better to buy when prices are at a cyclical low than when they are high and hitting the headlines.


From the ground. Upstream - Exploration and production (finding and mining the oil and gas.)

To the Pipelines.  Ships and pipelines (transporting the oil and gas to refineries and then again to the end users.)

To the Refineries. Downstream - refining (breaking apart crude oil into its component parts and refine it into end products, such as gasoline, jet fuel, and heavy lubricants.)

To the Consumers.  Downstream - marketing (operating petrol and convenience stations, as well as marketing fuels for industrial uses and electricity production).



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http://klse.i3investor.com/blogs/PublicInvest/80441.jsp

Oil & Gas - Pause and Replay…

Author: PublicInvest   |   Publish date: Tue, 28 Jul 2015, 09:59 AM 

---

…from 2HFY15 onwards as the market seems to have digested the shock of the oil price collapse and subsequent fluctuations, companies have continued business as usual. PETRONAS too has taken the opportunity to restructure their contract terms and award structure. They have launched a Cost Reduction Alliance, Coral 2.0, an industry-wide effort to expedite cost discipline, but are not cutting investments in innovation and research-related projects of which its CEO Datuk Wan Zulkiflee commented “stands to win in an increasingly difficult playing field”. In view of the lower oil price to be the new „normal' level, we believe the sector would be re-rated and thus retain our Overweight call. We anticipate contract types in the pipeline to include engineering, procurement, construction, installation and commissioning (EPCIC), fabrication, maintenance services and various jobs for the Refinery and Petrochemical Integrated Development (RAPID) project. Meanwhile, Iran has been keeping everyone on their toes as United Nations Security Council endorsed a deal to lift the nation's economic sanctions, but place strict limits on its nuclear programme. The agreement is still pending approval from US Congress and nuclear inspectors' confirmation that Iran is complying with the terms however, thus would unlikely be removed until next year. Assuming the successful end to the sanctions, the oil output post sanctions, is estimated to be an additional 1m bbl/day.

Global O&G market. Sentiment in global markets is currently weak, spurred by crude oil futures hitting 4-month lows after a steep fall in China's stock markets. China currently the world's largest energy consumer could be signaling concern on its economic health, while evidence of a growing crude glut is building up. Oil price has also been pressured with rise US drilling activity with data showing 21 rigs added last week, the most in over a year. The financial pressure faced by oil majors with severe earnings dips in the latest quarter has fueled concerns further. Much of this is resulting from the lower prices that oil field service companies are charging their customers to continue its works. The situation is further heightened by capex cuts in upstream spending, which have filtered through to the oil service providers, first-hand. Our concern remains on how long oil prices would remain low (or fall lower). Further weaknesses could be seen if the rebound continues to be delayed, as smaller drillers may lose their financial support and encounter debt or liquidity crises. We urge investors to focus on companies with reliable cash flow at present and to be cautious about rapid growth at this juncture.
The domestic O&G market is treading along in a more positive light, largely supported by PETRONAS' initiatives. The domestic market is more protected as its “contractor” is largely the country's national oil company (NOC) which continues to sustain and enhance oil production. PETRONAS will continue to spend, but to revert to the previous capex levels of c.RM40bn/year which we believe would still continue to stimulate the domestic O&G industry nevertheless. The cost of oil production for this region also averages between USD30 to USD40/bbl hence still below current oil price levels deeming operations to still be viable.
Overweight. We had recently upgraded our recommendation to Overweight, in anticipation of upcoming contracts that was expected since 2H14 but was halted due to the oil price uncertainties. Malaysia O&G counters are trading on average at c.13x PE, vs. high double-digit PEs in the past and thus we see potential upside. Our top picks are Uzma (Outperform, TP:RM2.98), Bumi Armada (Outperform, TP: RM1.48 and Petra Energy (Outperform, TP: RM1.88).

Coral 2.0. Under Coral 2.0, 11 key initiatives have been introduced to better implement plans and review the potential estimated savings target of between RM4.0bn and RM7.5bn, to be achieved before the end of the next 5 years in response to the decline in global oil prices. 25 petroleum arrangement contractors (PAC) in Malaysia including Royal Dutch Shell plc, Repsol S.A.'s subsidiary Talisman Energy Inc., Total S.A., Exxon Mobil Corp. and ConocoPhillips Co. have signed on to share best practices under CORAL 2.0 and are on the look-out for innovative platform designs that can be standardized across field developments to reduce capex and project delivery cycles. Key milestones include i) Proactive Demand Management, ii) Spend Consolidation, and iii) Driving Innovation. The initiative aims at instilling a cost effective approach across the industry, while uplifting the benchmark of the industry to a world-class level. This involves collaboration and operation with global best practices in Malaysian E&P.

Outcomes of Coral 2.0 workshop. Agreed since end-March, 8 initiatives to be implemented include; i) Joint Sourcing (Material Category), ii) Joint Sourcing (Services Category), iii) Technical Standard, iv) Logistic Control Tower, v) Warehousing Centralization & Common Stocking, vi) Cost Driver Benchmarking for OPEX, vii) Cost Driver Benchmarking for CAPEX, and viii) Late Life Field Optimization. The targeted potential annual cost saving to be achieved before the end of the next 5 years is RM4.0 to RM7.5bn. Factors Affecting Oil Price

Still-possible Greek default shadowing global equity markets, has pushed on the strength of the US dollar. The US dollar is often a form of safe haven during economic turmoil, however does not bode well for oil prices since oil is traded in dollars and thus would be more expensive. Greece's debt crisis moreover could dampen European energy demand.

Federal Reserve interest rate “gradual” hike - a short-term variable that could send oil prices up or down. Where a quicker decision is expected to increase interest rates which could press down oil prices, a looser policy may push prices up.

OPEC may see a change in leadership, as 79-year-old Ali al-Naimi, the Saudi oil minister is anticipated to retire and has a successor being groomed. Mr. Naimi's legacy strategy to keep output steady amidst a growing oil supply glut that caused prices to plummet, would indeed make him memorable. With Iran and Mr. Naimi's potential retirement on the table, the next OPEC meeting in November could be far more exciting. Indonesia was also seen to push to rejoin the cartel since its membership suspension in 2008 when it became a net oil importer. Indonesia wants to secure supply contracts with OPEC members, following its plans to ramp up its refinining capacity and thus would need crude supplies to fuel the production. They are seen to be aggressive in lobbying for this and could be reinstated by as early as the November meeting.

Geopolitical escalations, in particular in the Middle East and between Russia and the US.

IEA landmark report on recommendations to achieve “peak emissions” by the end of this decade.

Iran’s “appealing” oil contract terms include a collection of attractive contract terms to international oil companies which would pay more for higher production. It is also rumoured that Iran may even be prepared to offer production sharing contract (PSC) terms. It is also believed that Iran needs to JV with international oil majors to share its technology. With the world powers reaching a historic agreement to lift the sanctions on Iran but place strict limits on its nuclear programme.

Top Picks

Uzma will be buoyed by i) full year contribution from MMSVS (Hydraulic Workover Units), ii) full year contribution from Premier Enterprise Corporation (PEC) for trading of chemical and other commodities in oil refinery, iii) increase in strategic stake in Setegap Ventures from 30% to 49%, and iv) remuneration fee when RSC production begins 2HFY15.

Bumi Armada (BAB) will be supported by its long-term contracts coupled with its reputable execution abilities that would allow it to be enhanced by new contracts. We remain positive on BAB, considering its initiatives to stay focused and to dissolve potentially non-viable divisions such as the Oilfield Services division amidst the oil price uncertainties landscape. Earnings growth will be sustained by its RM25.6bn orderbook, comprising of long-term FPSO projects such as Kraken, 15-06, Madura and the latest Malta floating storage unit (FSU), BAB's foray into the liquefied natural gas (LNG) business.

Petra Energy will see the i) early activation of the Topside Major Maintenance Services (TMM) contract by PETRONAS Carigali Sdn. Bhd. (PCSB) for SBO effective since 4 July 2014, and will last until 20 May 2018. ii) Higher work orders for the PANM contract. iii) The KBM cluster RSC whereby Kapal and Banang Fields have produced c.4.0mbbl of oil to-date, with an average of c.700,000bbl/quarter. The Group has taken key measures to manage costs and operation expenditures while exploring new opportunities to attain new revenue streams.

Source: PublicInvest Research - 28 Jul 2015

Overvalued global markets

Tan warns of overvalued global markets

FORMIDABLE Malaysian fund managers who speak their mind are hard to come by. 

But you would not think of that when you meet the unassuming Capital Dynamics founder and managing director Tan Teng Boo – also the founder of Malaysia’s only closed-end listed fund, iCapital.biz.

For the record, iCapital.biz recorded a compounded return of 13.78% a year since its listing in 2005 versus 8.17% for the KLCI.

If the cash portion of RM240mil is removed, that return would be much higher. (Capital Dynamics is the fund manager of iCapital.biz).

Capital Dynamics now has three funds, with its biggest exposure in stocks listed on the London Stock Exchange. In Asia, its highest weightage are stocks listed on the Hong Kong Stock Exchange. 

So this week, when we spoke with Tan, he was again armed with some interesting contrarian insights. 

“To know whether a market is bullish or bearish, you see what kind of fools are around. In a bear market, the old fools are in the market. These are the seasoned people who have made mistakes. Today, there are a lot of new fools around,” he says. 

On a more serious note, Tan expects global markets to fall drastically. All his funds presently have high cash levels. He bases this view purely on stretched valuations. 

“Look at the last 12 months. The S&P 500 is now trading at a price earnings ratio of 20 times PE. What is more significant is that if you look at the Schiller cyclically-adjusted 10-year PE, it is now at 26 times. 

“The last three times it was at this level was in 1929, 1999 and 2007 to 2008,” Tan says. 

“When valuations are high, anything can be a trigger, and just like that, people will sell. And when markets are overvalued, you get bad returns.”

Are there anything in particular he is eyeing?

“For now, I cannot find specific stocks. I can’t buy crude palm oil (CPO) stocks. 

“CPO prices are down 50%, but stocks are at an all-time high!” he says. 

Secondly, Tan resolutely says that he is underweight on the Malaysian oil and gas sector, as well as some of the oil and gas service providers in Singapore.

“The oil and gas business is a commodity business where margins are not sustainable. Now, it appears that the barriers to entry are so low. When you have players like Eversendai Corp and Yinson Holdings Bhd, who have never seen a rig in their lives, now becoming global players, I would be very careful,” he says.

Tracking the economy 

Tan says post World War 2, inflation has been on a steady uptrend.

Thus, although the Conference Board Leading Economic Index (LEI) has been rising, he feels that this cannot be used as the ultimate indicator to track the economy. 

(According to Wikipedia, LEI is an American economic leading indicator intended to forecast future economic activity. 

It is calculated by The Conference Board, a non-governmental organisation, which determines the value of the index from the values of 10 key variables. 

These variables have historically turned downward before a recession and upward before an expansion).

“In the second half of the 19th Century, recessions took place even when there was inflation. The lack of or presence of inflation was not a consideration of recession. 

“I think we are now entering that phase. In the United States, real wages have been horrible and have not improved. 

“Savings rates are at historic lows.

“And right now, the US economy is deleveraging. Thus, not increasing interest rates will not stop the recession from taking place,” he says.

He notes that there are some clues from Japan. 

“Post 1990, there has been no inflation. While unemployment is low, there is, however, no aggregate demand. Consumers are simply not spending, and this is causing the recession”.

Meanwhile, when meeting the management of a company, Tan still prefers to look at the numbers. 

He says the best measure is still the return on capital employed.

“You will notice that most analysts or people who invest in stocks put more attention on the investment decision. 

“For us, we put the bulk of our attention on the research. 

“And when we do research, we talk to the regulators, the vendors, the competitors, then finally only do we talk to the targeted company,” he says.

Tan says it is because of this sort of analysis that iCapital sold all of its Tesco shares in 2011. 

“We felt the management was not getting their strategy right,” says Tan. 

Tesco has recently been hit by allegations of an accounting scandal and Warren Buffett is losing more than 40% of his US$1.7bil (RM5.44bil) investment. 

China

Tan has been a strong advocator of China, and this view is still just as entrenched. 

“The re-emergence of Asia is taking place, and it will be led by China, and it’s going to be earth-shattering. This re-emergence, however, will not be welcomed by developed countries and Japan,” says Tan. 

“China has all the capabilities.

“People think China just copies intellectual properties, but that is not the case. If you go back to history, you will see that the Chinese have a tremendously rich past.

“There is immense potential, and over the next 30 to 50 years, many things are going to change. 

“Values for one, will change. The corporate governance of the West will change. For example, maybe they will realise that democracy doesn’t seem to work,” he says.

“The new synthesis could be something like socialism but with Chinese characteristics. Or capitalism with Chinese characteristics,” he adds.

Tan likes what Chinese president Xi Jinping is doing to clamp down on corruption. He sees this as real courage. 

“He is now trying to bring back self-respect , where people must respect their culture. He is trying to revive Confucianism. He is aiming for a cleaner government, different values. It will not just be a case of being glorious to be rich,” says Tan. 

Tan claims that for all of Japan’s technological advancement, the Japanese haven’t invented a single thing. 

“Research shows that half the modern technologies of the world all originate from China. Football and golf, for instance, come from China.” 

There are only two countries in this world which are able to launch missiles at hypersonic speed - China and the United States. 

“The world hasn’t really seen the transformation of China,” says Tan. 

He says that if China could become something like Singapore in terms of per capita income, then the world is only just witnessing the beginning of it. 

“Every dynasty in China has spanned a few hundred years. So we are just seeing the beginning of the era of the Communist Party,” said Tan.

Hong Kong

On the issue of Hong Kong pro-democracy demonstrators demanding the right to elect the city’s chief executive via democratic elections, Tan describes their move as silly against a benevolent China. 

“The people of Hong Kong should remember that Hong Kong has always been part of China until the First Opium War. The British victories over China resulted in the cessation of Hong Kong to the UK (United Kingdom) via the enactment of new treaties in 1842.”

He says that in July 1992, Chris Patten, who was the last British Governor of Hong Kong, quickly introduced reforms that increased the number of elected members in the legislative council. 

“Why did Patten do this so close to the 1997 handover when all the time that Hong Kong was under British colonisation, the long-held British practice of no general elections was never questioned? Why do the people of Hong Kong behave so aggressively against China, but against the British, they did not dare make any noise?” he asks. 

“Britain ruled Hong Kong to selfishly benefit Britain. China did the opposite when she took back Hong Kong,” he claims. 

The next big thing

Tan thinks that whatever it is, it will be coming from China.

“If you’re talking of an Internet-related technology, it could be Alibaba (China’s biggest online commerce company) or something similar to it. The number of Internet users are three to four times larger than that of the United States and it is still growing. In fact it can still double up,” he says.

Tan says that Asia, with its three billion people, is also re-emerging, particularly India and Indonesia.

“The people of Indonesia are hardworking and creative. Now, if their new president can really enact change and lead them in the right way, I see tremendous potential for them. If India and Indonesia can start from where China started 20 years ago, the potential will be tremendous,” he said.

On oil, Tan says predicting its movement has become a lot more complex today.

This is because when crude oil moves to a certain level, renewable energies become a lot more attractive. He sees shale as just one of many factors contributing to the drop in oil prices.

“What’s clear is that the reliance on OPEC (Organisation of the Petroleum Exporting Countries) has dropped, and moving forward it will become less important,” he said.

Tan’s immediate ambition is to get iCapital.biz a dual listed global fund listed.

“As an Asian gentleman, this is a promise I have made to the share owners and I want to deliver,” says Tan., adding that what is important is how you do whatever you are doing.

“Do it the best that you can, then you become good at it. And once you become good at it, then you become interested in your career,” he says.

http://www.thestar.com.my/Business/Business-News/2014/10/04/The-cautious-contrarian-Capital-Dynamics-Tan-warns-of-overvalued-global-markets/?style=biz

Peter Lynch - One Up on Wallstreet (Book review)

Portfolio Management for the Lay Investor by Warren Buffett

As a small investor, you got a chance to be in thousands and thousands of great businesses and their prices change all the time; so their relative valuations change and you can make the exchange at very low cost, close to nothing. You can always shift from one business to another.

You have a huge advantage over the big boys, as they cannot shift their business to retail or something else so easily.  You can rearrange your business empire in your portfolio that you have at a moment's notice at practically no cost.  You have a huge advantage which, sadly, many turn into a disadvantage.

There is nothing in the price action of the stock that tells you whether you should keep owning the stock.  What tells you to keep owning it is - what do you expect the company to do in the future versus the price you are selling now.and compare to the other opportunity which you think you know equally well and make the same comparison.

You can check your portfolio regularly to see how to optimise the stocks in your portfolio.  There is nothing to stop you from checking this daily.  However, don't do it too frequently.




@ 33 minutes
Warren Buffett's advice on portfolio management for the lay investors.




Read also:  http://executiveeducation.wharton.upenn.edu/~/media/wee/course%20packs/wharton-investment-strategies-and-portfolio-management.pdf

Investment strategies and Portfolio Management

PROGRAM OVERVIEW
For finance or investment professional, change and challenge are constant, particularly in this volatile, complex marketplace. You are presented with diverse opportunities in emerging markets, real estate, hedge funds, derivatives, and other alternative investments. As the choices increase, shaping and monitoring investment portfolios becomes more complicated. Which investments will generate the highest returns without exposing you to excessive risk? In Investment Strategies and Portfolio Management, you will learn how to evaluate this fundamental issue and manage related risk to increase your effectiveness as an investment professional for your clients and your organization. This program examines specific investment areas such as stocks, bonds, derivatives, real estate, and global investments, giving you a solid foundation from which to build optimal investment portfolios and make better investments.

EXPERIENCE
Through the Investment Strategies and Portfolio Management program, you will increase your effectiveness as an investment professional and gain financial tools you can immediately put to use for your clients and your organization. Wharton’s Finance faculty facilitates highly interactive dialogues that demonstrate hands-on applications of portfolio and investment strategies. They, along with noted industry experts, examine current issues such as the market outlook, investing in emerging markets, alternative investments, and hedge funds. All content is designed for you to use practically and effectively once you leave the classroom.

The question to ask yourself: Can I get more for my money somewhere else?

Recognise your mistakes

If you have a good person running the business and the business is not making money, you need to recognise the business is not a good one.  Take action to get out of this business, you are in the wrong business..


When prices fall

I love it when the prices of the things I buy go down.  This applies to stocks too.

Many people think the stock knows more than they do.  So when the stock goes down in price, they think the stock is telling them something.  They take the price as if it is a referendum on themselves versus the stock.

The truth is the stock doesn't know what you pay to own it.  The stock doesn't even know if you own it. You are nothing to the stock.  Yet, the stock is everything to you.  You remembered paying $10.13 for the stock.

The only question to ask yourself:  Can I get more for my money somewhere else?

Investment management process: 5 step procedure

Investment management process is the process of managing money or funds.

The investment management process describes how an investor should go about making decisions.

Investment management process can be disclosed by five-step procedure, which includes following stages:

1. Setting of investment policy. 

2. Analysis and evaluation of investment vehicles. 

3. Formation of diversified investment portfolio. 

4. Portfolio revision 

5. Measurement and evaluation of portfolio performance.


Ref:  http://www.bcci.bg/projects/latvia/pdf/8_IAPM_final.pdf

The remarkable journey of Warren Buffett

Much has been written on Warren Buffett.

Sometimes it is not easy to piece everything together.

He started at a very young age in his wealth accumulation.

As a teenager, he read a lot of books on business in the libraries.

He started to earn income through business during his school days.

Earning money at this young age must surely triggered his entrepreneur spirit.

His paying of income tax at a young age was certainly significant.

A young person of his age with that income was definitely going to view the world a lot different from one who was still receiving meagre pocket money from mum and dad.

He knew what he wished to learn, a very important passion few have at this age.

He went to university and discovered that he knew a lot more of business than the course that was taught.

He completed his degree and then went to Columbia to study under Benjamin Graham.

It must be the most exciting time for him. 

Learning magic formulas to make money safely, logically and using his brain power.

He blossomed having met the right teacher, eagerly acquiring the right knowledge that he was able to use repeatedly to compound his wealth.

Of course, Buffett has all the attributes that will make him highly successful on his own too.



How did he acquire so much wealth?


1.  He started to invest in the stock market.  He started to manage funds for investors.  Over the years, he grew the wealth for his investors and for himself.

2.  He did not just stop there.  Soon, he acquired businesses.  He acquired Denver and sold it for a profit.  He acquired Berkshire Hathaway, got stuck with it but then was able to do something quite remarkable.

3.  Though Berkshire Hathaway was not doing so well as a business, Buffett was able to redeploy capitals to other businesses and stocks very productively.  Eventually, the original business of Berkshire was closed down and it became the holding company for all the other profitable companies and stocks that Buffett has acquired.

4.  Another fact that was interesting.  At the time of acquisition of Coca Cola, it was the biggest asset in Berkshire.  It dwarfed all the worth of the other businesses in Berkshire.   Remarkable, pause to think over this for a while.  This was one of Buffett's major success that propelled him to huge wealth.

5.  Just as remarkable, Coca Cola today is a smaller component of the Berkshire empire.  The 70 or so other businesses owned outright by Berkshire now dwarf all the quoted shares of companies that Berkshire owns.  Pause and think again on this transformation of Berkshire.   Over these years, Buffett has diligently used the income and cash generated in the company to acquire businesses increasing its streams of income.  At present, the company is generating high return on its capital and a lot of  free cash flows which Buffett has to seek homes for regularly.


Implications for the  young investors.  

1.  The average young investor is a wage earner.  He would need to manage his money well.  He will need to save early and grow his savings quickly.  If he is smart, he grows his earnings with his career.  If he is hardworking, he can also find additional stream of income with his time.

2.  As early as possible, the young investors to be, should acquire the knowledge to invest safely for the long term.  While staying in their jobs or careers, the stock market is a vehicle which I will recommend,  PROVIDED THEY HAVE THE SOUND KNOWLEDGE. This is the most important prerequisite.  Without a sound investing philosophy and knowledge, the stock market is actually an extremely dangerous place to be in.  Your capital can be easily decimated and you might as well just put your money in risk free fixed deposits.  Therefore, before investing in the market, spend a few years investing in yourself; get yourself educated and acquire a sound financial investing knowledge.

3.  Invest regularly for the long term.  Keep investing.  Stay with good quality growth stocks buying them when their prices are reasonable.  Do not over diversify.  Keep the winners, sell the losers.  Do not overtrade.  Be patient, don't overpay to own any shares.  Hopefully, and with a reasonably high degree of probability, this will build up your portfolio wealth over time.

4.  Be a net investor in the early years of your life.  Soon, your income and cash flows grow.  You would have grown a portfolio of stocks that will appreciate over time and also generate income for you.  Most of you should be contented to achieve up to this stage.

5.  If your income is huge by then, you can then also acquire assets or businesses.  (See what Peter Lim, the Singaporean billionaire, is doing with his money today.)



Contrasting Buffett and Trump

1.  Donald Trump declared as required as a contestant for the Presidential post in US that he has a networth of US 10 billion and annual income of US 350 million or thereabout.

2.  Buffett is worth US 70 billion and growing this by 10% per year presently.

3.  Who wins?  The better question is:  Who would you like to emulate?  Both are fabulously rich.  But if I have to choose, I will prefer to be in Buffett's situation.  It is better to own an asset that is generating high ROA and ROE.  Over the long term, such an asset eventually will continue to reward you hugely. 

Carl Icahn and Larry Fink at Delivering Alpha 2015 in New York.

Icahn says he has "no idea" where equities will end up this year. "We have the same problems we saw in 2007." He also said that, when high yield goes down, there will be nobody to buy.


Carl Icahn and Larry Fink at Delivering Alpha 2015 in New York.

The fifth annual Delivering Alpha conference concluded on Wednesday in New York City with BlackRock CEO Larry Fink and Activist Investor Carl Icahn debating activist investing.

Fink said that, while activism did have an important role in the financial world, many have also pushed companies toward buying back increasing amounts of stock. He added that this could be holding back the U.S. economy.


On the other hand, Icahn said that BlackRock's role in ETFs, along with the Federal Reserve, were pushing the equities market towards a cliff.


http://www.cnbc.com/2015/07/15/ring-alpha-conference-to-begin-soon.html?trknav=homestack:topnews:2


Fink: 

Activist plays an important role.

Investors should be interested in the proper return they expect from the companies they invested in.

He will ask or write to the management on:

What is your strategy in growing your company's business over the long term?

What is your long term strategy regarding growing organically or through acquisition?

What is your strategy regarding share buyback and dividends?

OCK - What do you think of this company's business?

OCK is involved in the construction of the infrastructure back bone for the huge and fast growing data hungry market. The market is so huge that it had propelled smart phone manufacturer - Apple and Samsung, to be one of the top 10 companies in the world, just by selling smart phone devices. The smart phone is so hotly sought after because of it's capabilities to act like a computer in a mobile manner. Huge amount of money are spent to develop applications to enhance the smart phone usage. However, all these will be rendered useless if there is not internet data to connect the user to the world of apps.

With such a big future ahead in this industry, how would OCK capitalize on this opportunity?

Here is a very good write up on this company.  Read more here:
OCK - Data Revolutionized

What is the strategic and tactical orientation of your fund?

HDFC Equity: Top gun

 

This perennial winner has a massive fan following. And rightly so! Like a magician repeating a trick, HDFC Equity has beaten the category average every single calendar year since 1997. Its ability to identify opportunities at the right time is the key factor contributing to its success. For example, when the Supreme Court halted PSU disinvestment in September 2003, the fund sold its entire energy holding and built a fresh position in March 2004, when PSU stocks started rallying.

Though the fund maintains a large-cap bias, it does not hesitate to invest substantially in stocks of smaller companies, as and when there are opportunities to exploit. Currently, large-caps account for 51 per cent of the assets while the mid- and small-cap allocations stand at 42 and 6 per cent respectively.

The fund manager has always boldly ridden his convictions. He refrains from taking cash calls and prefers to remain fully invested at all times. Historically, his portfolio has been a focussed 25-30 stocks. But the complexion of the fund seems to be changing on this front. The number of stocks has increased to over 45. And, the concentration in the top five holdings has been moderated from 35-40 per cent about a year ago, to just around 25 per cent now.

This is probably not reflective of his stance but rather an adjustment to the size. Investors have flocked to this fund in droves making it the largest diversified equity offering of Rs 5,000 crore. And this very factor may be detrimental to the strategy of the fund. The fund’s ability to identify opportunities and take meaningful exposure in them will be neutralised by its increasing size. The fund has displayed ample spunk till date, but it remains to be seen how it fares from here on.

Information
www.hdfcfund.com
NAV: Rs 182.838 (28/09)
Entry Load: 2.25% for investment less than Rs. 5 Cr.
Exit Load: Nil
Expense Ratio: 1.83%
Launch: Dec ‘94
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: S&P CNX 500
Portfolio Manager: Prashant Jain

Top sector weights	% of Assets
Capital Goods	17.68
Energy	13.90
Financial Services	12.13
Consumer Non-Durable	8.85
Technology	8.43

Fund Manager: Prashant Jain

Hard to forecast

Jain is one of the most revered fund managers, known for his astute stock picking abilities. All his funds are five-star rated, be it equity or balanced. The impressive list includes HDFC Equity, HDFC Prudence and HDFC MIP Long Term.
Jain worked for two years with SBI Mutual Fund before joining Zurich India AMC. In 2003, HDFC Mutual Fund took over and he has been with the fund house ever since. An engineer from IIT, he holds an MBA from IIM.

Do you see a market crash in the near future? 
In my opinion, a “crash” is probably too strong a word for the Indian market. But a correction can never be ruled out.

It is true that the Indian market is somewhat expensive, but it offers a unique combination of size and growth. Global investors are increasingly looking at India as a mainline asset class and are therefore, investing with a long term view. If you look at Indian P/E's of nearly 20, 15-20 per cent earnings growth, interest rates of 4-6 per cent prevailing outside India and an appreciating currency, then Indian P/E's still look reasonable. India is somewhat expensive compared to the past and to the prevailing interest rates locally. But when viewed in the global context and in view of improved size, fundamentals and visibility of the Indian economy, the market does not appear to be unreasonably valued.

What is the strategic and tactical orientation of your fund? 
We refrain from taking significant cash calls, as we believe investors are doing the asset allocation at their end. Further, it is extremely difficult to time the markets. For instance, early 2000, when the market was at a peak, the cash levels in funds were extremely low. But in September 2001, when the market was at the bottom, cash levels were higher.

In view of the above and the attractive medium to long-term outlook of equities, HDFC Equity Fund continues to remain nearly fully invested.

In the case of HDFC Prudence, the fund has been overweight on equities since 1999. The exposure to equities is between 70-75 per cent and the rest is in bonds. One change that has been done in the last six months is that the maturity of the fixed income portfolio has been increased. This is because the risk reward equation of long maturity bonds is favorable.

Which are your top sector preferences?
Both funds are overweight on capital goods, banking, media and FMCG stocks. The Equity Fund has a lesser exposure to mid caps than Prudence.

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Comment:  Learning the working of a fund manager.  

Share valuations of world's top medical glove makers surge - but not on MERS

Share valuations of the four biggest medical glove makers in Malaysia - in the world, in fact - have soared to historic highs, but not because of the MERS outbreak.

The median forward 12-month price-to-earnings ratio of Top Glove (TPGC.KL), Supermax (SUPM.KL), Kossan Rubber Industries (KRIB.KL) and Hartalega (HTHB.KL) has risen to 18, the highest ever, according to Thomson Reuters data. The figures also show their combined revenue is expected to grow 20 percent in 2015, the most in five years.

(For a graphic on sales growth, click: link.reuters.com/pym94w)

The chief driver of sales is the ringgit's slump to nine-year lows against the dollar, making exports more competitive. Low raw material prices will also help widen profit margins. Analysts advocate a selective stock-picking strategy. Among the four, they see Top Glove as their top pick. Shares of the world's biggest glove maker, which commands a 25 percent share of the market, have jumped some 11 percent in Kuala Lumpur since the company released earnings on June 17 that beat expectations.

"I think given the strong rally in Kossan prices, value has emerged more in players such as Top Glove and Supermax," said Chris Eng, head of research at Etiqa Insurance & Takaful, which manages more than 23 billion ringgit ($6.12 billion) of assets. "Probably Top Glove presents the most value as we expect oil prices to gradually rise in coming months putting upward pressure on nitrile as well, which will disadvantage Hartalega and Kossan."

The recent outbreak of Middle East Respiratory Syndrome (MERS) in South Korea has also helped spark investor interest in the stocks, though analysts do not expect MERS to translate into a jump in glove demand with a material impact on earnings. Malaysia-based RHB Research attributed this to the success of South Korea in containing MERS. South Korea has reported a total of 180 MERS infections as of Thursday morning, with 29 deaths. In contrast, Severe Acute Respiratory Syndrome (SARS) in 2003 infected 8,096 people and killed 774, and driving up demand for medical gloves. As for Ebola, which has killed more than 11,000 people in West Africa in the past year, cases have declined sharply in recent months.

http://www.reuters.com/article/2015/06/25/us-malaysia-stocks-pharmaceuticals-glove-idUSKBN0P501Q20150625