Monday 9 November 2015

Small and mid-cap stocks showing better results


“I personally think that if investors spend time and look at each individual company, they will see good investable companies,” chief executive officer Datuk Tajuddin Atan told reporters on the sidelines of the Focus Malaysia Best Under A Billion Award event recently.
He said while the big listed companies and the top 30 are investable, the focus will be on the small and medium-cap companies that are growing and have good potential.
More cash injection into the capital market will help improve its performance, he said, pointing out that a few companies are already giving good results as well as providing clarity in their plans.
“Investment by ValueCap Sdn Bhd (the government-owned fund manager) by looking at the fundamentals and their performance would improve the market especially in terms of liquidity,” he added.
Inter-Pacific Research Sdn Bhd head of Research Pong Teng Siew was quoted as saying small and mid-cap stocks had performed quite well.
“Investors are still in a holding mode, on expectations that ValueCap will start investing in the equity market in late November or early December.
“No one is selling ahead of that. Once the investment starts to come in then we can expect the market to climb,” said Pong. — Bernama


Read more: http://www.theborneopost.com/2015/11/09/small-and-mid-cap-stocks-showing-better-results/#ixzz3qwlsAkhA

Small-cap, fbm 70 to continue drive Bursa M’sia until year-end




He said this was based on the current pattern where a lot of local fund managers participated in buying activities this month, which was ‘unusual’ as historically the market would take a breather in November after a good performance in October.
“What is happening now is quite interesting because there are a lot of liquidity in the market and the investors seem to be optimistic on the performance of the shares,” he said.
Zulkifli, who is also MIDF Head of Research Department, said this to reporters after a luncheon talk featuring MMC-Gamuda KVMRT (T) Sdn Bhd, hosted MIDF Investment here today.
The persistent buying interests in small-cap and FBM 70 stocks had resulted in an increase in prices for about six to seven consecutive days, he said.
He said the local sentiment has improved, probably due to the share prices which had fallen significantly and buyers were now comfortable to go in.
“We are quite optimistic the market is resilient and the potentials for it to progress next year are positive based on the recent trend,” he said.
Zulkifli said fundamentally, Bursa Malaysia was all right and everybody agreed that the ringgit was undervalued and did not reflect the fundamentals.
He said the research house has reiterated its target for the benchmark FBM KLCI next year of around 1,850-point level. — Bernama


Read more: http://www.theborneopost.com/2015/11/06/small-cap-fbm-70-to-continue-drive-bursa-msia-until-year-end/#ixzz3qwfvgdcg

Maybank Investment Bank issues 16 new call warrants




KUALA LUMPUR: Maybank Investment Bank Bhd has issued 16 European style cash-settled call warrants over ordinary shares of Bumi Armada Bhd, Dayang Enterprise Holdings Bhd, Dialog Group Bhd, Petronas Chemicals Group Bhd, SapuraKencana Petroleum Bhd and UMW Oil and Gas Corporation Bhd.
The warrants will be listed today with an issue size of 100 million each, the investment bank said in a statement yesterday.
It said the issuance targets sophisticated investors looking to profit from the volatility of the oil and gas sector following the US Federal Reserve’s decision to hold an interest rate hike, thus contributing to the market uncertainty which impacted the global currency market.
“This is a contributing factor that could drive up the volatility of share prices in the oil and gas sector,” it said.
Furthermore, it said, a proposal by Venezuela to reduce oil production and boost oil prices in a recent Organisation of Petroleum Exporting Countries (OPEC) meeting also did not go through, and industry players would be looking to the next OPEC meeting, expected on Dec 4, for some guidance. — Bernama


Read more: http://www.theborneopost.com/2015/11/06/maybank-investment-bank-issues-16-new-call-warrants/#ixzz3qwgGM05i

Heftier cigarette prices bad news for BAT’s earnings in coming quarters




Pricier cigarettes may lead to further down-trading BAT’s flagship brands, Dunhill and Kent which will now retail for RM17 per pack, while its value-for-money brands will now sell for RM15.50 per pack. — Reuters photo
Pricier cigarettes may lead to further down-trading BAT’s flagship brands, Dunhill and Kent which will now retail for RM17 per pack, while its value-for-money brands will now sell for RM15.50 per pack. — Reuters photo
KUCHING: Analysts are less optimistic on cigarette maker British American Tobacco Bhd’s (BAT) outlook following the announcement of a price hike for its brand cigarettes.
On Tuesday, the government increased the excise duties on cigarettes by 12 sen per stick to 40 sen per stick. Consequently, BAT increased its retail prices by RM3.20 per pack across the board effective yesterday.
This translates into an increase of 16 sen per stick. Its new premium product, Shuang Xi brand, will be priced at RM18 per pack. Overall, this brings BAT’s year to date  increase in cigarette prices to RM3.50 per pack, or 17.5 sen per stick.
Analysts at MIDF Amanah Investment Bank Bhd (MIDF Research) expect earnings for BAT to be impacted in the midst of a challenging outlook for cigarette players in general.
“We expect the price hike to impact its earnings for 2015 due to the possibility of a volume drop in November and December months,” it detailled in a note yesterday. “Historically, the volume would most probably rebound after two or three months of experiencing a decline.
“However, in this current environment, with the growing presence of vapes (electronic cigarettes) and the still widely accessible illicit cigarettes, we believe that it would be an uphill challenge for BAT’s volume to rebound to its current levels.”
Although MIDF Research believe that the demand for cigarettes will remain in the uptrend for the longer term, it said it would be “an extremely tough challenge for BAT to maintain its sales volume in the shorter term.
Meanwhile, Affin Hwang Investment Bank Bhd (AffinHwang Research) said pricier cigarette sticks may lead to further down-trading BAT’s flagship brands, Dunhill and Kent which will now retail for RM17 per pack, while its value-for-money (VFM) brands will now sell for RM15.50 per pack.
“Although margins may be maintained, we believe that sales volume may suffer as a result and the risk is that this could develop into a larger shift to illicit cigarettes and potentially e-cigarettes, especially when prices go way past affordable levels,” it said.
“Despite the government’s effort in clamping down the illegal cigarette market, the market share for illicit cigarettes still stands at about one-third of the tobacco industry.”
“We also expect this huge price hike to further support the alternatives, such as illicit cigarette market, as smokers would be hard-pressed in view of the increasing cost of living.
“In view of the massive price hike in cigarettes, there is a strong likelihood for some smokers to either switch to a cheaper brand, illicit cigarettes or shift to vapes as it is now arguably cheaper than smoking conventional cigarettes.”
As such, the research house revised the earnings for FY15 and FY16 downwards by four per cent and 5.1 per cent to factor in the loss in volume due to the price hike.”


Read more: http://www.theborneopost.com/2015/11/05/heftier-cigarette-prices-bad-news-for-bats-earnings-in-coming-quarters/#ixzz3qwfdlrH4

PetChem beats expectations, 4Q to be another good quarter


KUCHING: Petronas Chemicals Group Bhd (PetChem) performed better than expected in the third quarter (3Q) and will likely record another good quarter ahead, on the back of the recovering petrochemical prices and better utilisation of its facilities.
AllianceDBS Research Sdn Bhd (AllianceDBS Research) said in a report, “We expect 4Q to be another good quarter for the group as petrochemical prices have seen a slight recovery while utilisation is expected to maintain strong with no maintenance activities scheduled.
“In the financial year 2016 to 2017 (FY16 to FY17) we expect utilisation to stay strong as the group has shown sustainable improvements in operational efficiency and the Fertiliser & Methanol (F&M) segment will benefit from steady feedstock supply with a new pipeline.
“This leads us to raise estimates by three to 13 per cent for FY15 to FY17 forecast.”
Aside from that, it pointed out that PetChem had recently announced that it would be acquiring the entire equity in three companies from Petronas for the production of 2.7mtpa of glycols, polymers and elastomers for US$110 million.
“Budgeted capital expenditure (capex) is US$3.9 billion to build the three plants but debt or equity funding has not been formalised yet as there are partners who will be involved. More investment decisions are expected as the group hopes to invest in a more specialised chemical plant as well,” it added.
On its 3Q performance, AmResearch Sdn Bhd (AmResearch) said PetChem’s first nine months of FY15 (9MFY15) net profit came in above expectations largely due to favourable foreign exchange (forex) gains and improved plant utilisation.
“PetChem’s 3QFY15F earnings surged by 65 per cent quarter-on-quarter (q-o-q) to RM916 million mainly due to higher sales volume and realised favourable exchange rate movement, which offset the impact of lower average product prices.
“PetChem’s overall plant utilisation rose to 2QFY15 decreased to 88 per cent from 78 per cent in 2QFY15, in which the group had undertaken a statutory turnaround activity at its Gurun urea facility.
“Management expects FY15F plant utilisation to remain at 85 per cent and rise to 90 per cent in FY16F as the group is expected to undergo normal turnaround activities,” it noted.
Nevertheless, it opined the near-term outlook for product prices remains mixed as a likely improvement in olefins and derivatives, supported by supply constraints by Middle-Eastern plant maintenance activities towards the end of the year, could be offset by softer fertiliser and methanol prices, and dampened by weak demand and crude oil prices.
Aside from that, on PetChem’s project at Rapid, AmResearch said this project, which could later involve foreign equity partners, is expected to cost US$3.9 billion with commencement scheduled for 2019.
“Assuming a project internal rate of return (IRR) of 12 per cent, we estimate that the entire stake in this petrochemical project could generate an earnings accretion of RM1.8 billion or 67 per cent of FY15F earnings,” it added.


Read more: http://www.theborneopost.com/2015/11/05/petchem-beats-expectations-4q-to-be-another-good-quarter/#ixzz3qwdyUGrA

New product launches, cost efficiency measures likely to support F&N’s growth


KUCHING: Fraser & Neave Holdings Bhd’s (F&N) performance will likely be supported by new product launches as well as cost efficiency measures, analysts say.
TA Securities Holdings Bhd’s research arm (TA Securities) highlighted that weak consumer demand will likely intensify the pricing competition in the food and beverage industry.
It also noted that selling costs, especially advertising and promotions associated costs are expected to surge.
Nevertheless, it pointed out that new product launches together with cost efficiency measures could help F&N in mitigating the expected tough operating environment ahead.
Meanwhile, on its full year financial year 2015 (FY15) performance, TA Securities said that the company’s results came in below its estimates.
However, it noted that F&N’s net profit had improved by eight per cent year-on-year (y-o-y) to RM280.1 million, driven by its dairies units (Dairies Malaysia and Dairies Thailand).
“The segment benefited from both, higher sales (Malaysia at three per cent y-o-y, Thailand at 17.7 per cent y-o-y) and improved margin (lower milk-based commodity cost).
“Excluding the fair value loss from investment properties and the gain from foreign exchange, core net profit was slightly higher at RM282 million (an increase of nine per cent y-o-y).
“Operating profit also grew by of 6.5 per cent y-o-y to RM333.9 million, underpinned by improved margin Dairies Malaysia (an increase of 2.5 percentage points y-o-y) and Dairies Thailand (an increase of 1.3 percentage points y-o-y) segment,” it explained.
However, the research team noted that the group’s blended average operating margin was flat y-o-y, as the margin expansion in the dairies units were offset by margin contraction in the soft drinks unit (down 2.2 percentage points y-o-y to 8.4 per cent).
TA Securities commented that the flat soft drinks unit’s performance was likely due to the floods in the east coast of Peninsular Malaysia in the first quarter of 2015 which negatively impacted demand, soft consumer sentiment post-GST implementation, low post-festival sales, higher trade discounts, and loss of two months modern trade sales of Red Bull (contract expired last September).
All in, the research team maintained a ‘sell’ recommendation on F&N for now.


Read more: http://www.theborneopost.com/2015/11/05/new-product-launches-cost-efficiency-measures-likely-to-support-fns-growth/#ixzz3qwbKka1K

Smaller stocks can shine bright, says Templeton Group


However, Templeton Emerging Markets Group believes within the emerging-markets universe, it sees a number of small-cap stocks with shining potential that should not be ignored.
According to Dr Mark Mobius, executive chairman of Templeton Emerging Markets Group, they have found that as an asset class, emerging-market small cap is one of the most widely misunderstood and underutilised among investors.
“It is often perceived to be a place to avoid in times of uncertainty, but we see things differently.
Many small companies are driven by local market dynamics and are therefore less dependent on global market trends,” he said.
Mobius went on to note that the small-cap emerging-market universe is anything but small—there are thousands of small-cap stocks available to invest in today, and the investment universe continues to expand due to the gradual liberalisation of equity markets to foreign investors and the continued expansion of equity markets through initial public offerings, secondary offerings and privatisations.
Among the many reasons to consider investing in small-cap stocks, smaller companies in emerging markets are generally privately owned, competitively operated, more local and are often larger players in smaller industries, Mobius said.
“Aside from relatively high organic growth compared with most larger companies, industry consolidation and acquisitions by larger companies as well as increased investor attention are additional potential sources of growth which can be independent of the broader macroeconomic environment.
“Many of the stocks in this space are under-researched or unloved, giving us the opportunity to uncover interesting opportunities others may have overlooked.
“We see that as the essence of what investing in emerging markets generally is about—discovering undervalued stocks in burgeoning markets that could rise to become tomorrow’s stars,” he said.
Mobius went on to note that the Asian small-cap space is of particular interest to them, and they have been using recent market volatility to search for opportunities.
“We believe reforms taking place in many emerging markets in the region could prove to be beneficial for smaller companies.
“Additionally, since domestic demand is typically the main revenue driver for small-cap companies, the combination of good economic growth, a growing middle class and lower oil prices—which can help check inflation and support a lower-interest rate environment—could be an added benefit to smaller companies in the region, freeing up consumer dollars to purchase their products,” he added.
Mobius noted that within the small-cap space in emerging Asia, they currently favor consumer-oriented companies given the growth opportunities they see across many markets, as well as health care, pharmaceuticals and biotechnology companies.
He further noted that this of course does not mean these companies are all well managed or worthy of investment.
“Therefore, purchasing small-cap stocks through a passive (index-based) strategy may produce unintended consequences.
“Stocks with poor growth prospects, poor corporate governance or other such factors may be components of a small-cap benchmark index, but they might not be desirable to invest in over the long term,” he said, adding that regular index rebalancing can generate significant portfolio turnover for passive investors.
We strive to generate alpha1 through our bottom-up stock selection process, looking for companies that we think can increase their market cap by a multiple over a five-year time horizon, and we strive for only modest yearly turnover,” Mobius said.
On risk, Mobius pointed out that it is certainly an important part of a discussion about small-cap investing.
“I’ve never met a client who complains about upside risk. What worries clients is downside risk, and this is where we think we add value as active investors.
“Our team maintains an unrelenting focus on quality, seeking fundamentals that are on almost every measure superior to a benchmark index, including higher return on equity (ROE), profit margins and earnings-per share (EPS) growth, lower debt, better dividend yield, and most importantly for us at Templeton, cheaper valuations in terms of priceearnings ratios,” he said.
Mobius noted that contrary to many investor assumptions, the emerging-market small-cap benchmark index, as measured by the MSCI Emerging Markets Small Cap Index, at times has been less volatile than the broader index, the MSCI Emerging Markets Index, as well as the Russell 2000® Index, a US small-cap benchmark.2
“To us, that makes sense because small-cap companies are less correlated with each other, and less integrated into global markets than large caps generally speaking,” he said.
Mobius further noted that there are also numerous inefficiencies in small-cap markets, offering potential for alpha.
In the US, small-cap stocks generally trade at a premium to large caps in terms of price-earnings, due to the higher growth they can provide, he says.
“When you look at emerging markets, sometimes the opposite may be true. In India, for example, small caps are generally trading at a discount to large caps.
“Much of this investment money is what we’d call ‘lazy money’, or passive investment money, concentrated in large-cap index stocks that are not only more expensive but also subject to the volatility generated by rapid inflows and outflows of such foreign investments.
“Accordingly, we have found many undiscovered opportunities in Indian small caps,” he added.
Overall, Mobius noted that small-cap stocks have the potential to offer what is becoming ever-more rare in a slowing global economy—growth—and not only in India.
“Many emerging markets offer this strong growth potential—with many small-cap stocks available to potentially take advantage of it,” he concluded.


Read more: http://www.theborneopost.com/2015/11/05/smaller-stocks-can-shine-bright-says-templeton-group/#ixzz3qwWxvQi3

UEM Edgenta in Forbes Asia’s Best Under A Billion


The list honours 200 leading public companies from a universe of 17,000 companies in the Asia-Pacific region with annual revenue of between US$5 million (US$1=RM4.26) and US$1 billion, having positive net income and been publicly traded for at least a year.
Managing director and chief executive officer Azmir Merican said the recognition is an affirmation of UEM Edgenta’s revenue growth, high performance standards of services as well as the company’s role as one of the leading total asset solution providers in the region.
“UEM Edgenta’s vision of ‘optimising assets to improve lives’ sets the philosophy of how we approach our work, and our catchphrase ‘empowered by science, inspired by humans’ demonstrates our commitment to leveraging on technology to give us the edge,” he said in a statement yesterday.
From 2010 to 2014, UEM Edgenta’s compound annual growth rate (CAGR) grew by 7.8 per cent, while its market capitalisation increased by more than three times in under three and a half years and total shareholder return for the past two years significantly outperformed the FTSE Bursa Malaysia KLCI by approximately 132 per cent.
The recognition follows the recent award of the 2015 Frost & Sullivan Asia Pacific Integrated Facilities Management Competitive Strategy Innovation and Leadership Award. — Bernama


Read more: http://www.theborneopost.com/2015/11/05/uem-edgenta-in-forbes-asias-best-under-a-billion/#ixzz3qwVtYKEk

Petronas Dagangan’s 9M15 earnings beats expectations

November 4, 2015, Wednesday

Petronas Dagangan said in a filing on Bursa Malaysia that group operating profit for the period ended September 30, 2015 was RM963.8 million, an increase of RM251.6 million compared to the corresponding period last year mainly as a result of lower operating expenditure (opex) by RM123 million, higher other income by RM75.2 million and higher gross profit of RM53.4 million.
According to AllianceDBS Research Sdn Bhd (AllianceDBS Research), Petronas Dagangan booked net profit of RM219 millon in the third quarter of 2015 (3Q15), taking 9M15 net profit to RM697.9 million.
This beat expectations at 96 per cent of the research house’s full year forecasts, and 90 per cent of consensus.
Excluding the non-core items, Petronas Dagangan’s normalised cumulative 9M15 earnings of RM623.6 million exceeded the research arm of MIDF Amanah Invesment Bank Bhd’s (MIDF Research) full year earnings expectation by a variance of more than +10 per cent.
“Management guided that the commendable earnings were due to aggressive cost control efforts,” it said.
AllianceDBS Research noted that given the challenging operating environment, Petronas Dagangan has moderated the group’ expansion to 20 to 30 stations per annum (from 50 per annum).
The research house further noted that Petronas Dagangan also has undertaken various measures to keep opex at RM320-350 million per quarter, leading to a 16 per cent year on year (y-o-y) decline in opex in the first half of 2015 (1H15).


Read more: http://www.theborneopost.com/2015/11/04/petronas-dagangans-9m15-earnings-beats-expectations/#ixzz3qwTMYKMG

Tuesday 3 November 2015

Behavioural Finance - A Summary

Here is a summary of what you will learn in Behavioural Finance:

Conventional finance is based on the theories which describe people for the most part behave logically and rationally. People started to question this point of view as there have been anomalies, which are events that conventional finance has a difficult time in explaining.

Three of the biggest contributors to the field are psychologists, Drs. Daniel Kahneman and Amos Tversky, and economist, Richard Thaler.

The concept of anchoring draws upon the tendency for us to attach or "anchor" our thoughts around a reference point despite the fact that it may not have any logical relevance to the decision at hand.

Mental accounting refers to the tendency for people to divide their money into separate accounts based on criteria like the source and intent for the money. Furthermore, the importance of the funds in each account also varies depending upon the money's source and intent.

Seeing is not necessarily believing as we also have confirmation and hindsight biases. Confirmation bias refers to how people tend to be more attentive towards new information that confirms their own preconceived options about a subject. The hindsight bias represents how people believe that after the fact, the occurrence of an event was completely obvious.

The gambler's fallacy refers to an incorrect interpretation of statistics where someone believes that the occurrence of a random independent event would somehow cause another random independent event less likely to happen.

Herd behavior represents the preference for individuals to mimic the behaviors or actions of a larger sized group.

Overconfidence represents the tendency for an investor to overestimate his or her ability in performing some action/task.

Overreaction occurs when one reacts to a piece of news in a way that is greater than actual impact of the news.

Prospect theory refers to an idea created by Drs. Kahneman and Tversky that essentially determined that people do not encode equal levels of joy and pain to the same effect. The average individuals tend to be more loss sensitive (in the sense that a he/she will feel more pain in receiving a loss compared to the amount of joy felt from receiving an equal amount of gain).


Read more: Behavioral Finance: Conclusion | Investopedia http://www.investopedia.com/university/behavioral_finance/behavioral12.asp#ixzz3qP6bHYmC

Thursday 22 October 2015

Growing versus Non-growing company. Value Investing versus Growth Investing.

A growing company versus a non-growing company


Given the choice, you should choose to invest in a company that is growing its revenues, earnings, and free cash flows over time.  This company continues to grow its intrinsic value and over time, you will be well rewarded for investing in it.


Is investing into growing companies the same as growth investing?

Let us illustrate using company Y.  Company Y is a company that is growing its revenues, and earnings 15% per year, consistently and predictably for the last 10 years.   

At certain times, Company Y is available at a P/E of 10.  Buying Company Y at this stage is a bargain.  It is available at a bargain price.  This is value investing.  If you use PEG ratio of Peter Lynch, it is available at a PEG ratio of 10/15 which is < 1.   


At other times, Company Y is available at a P/E of 20.  Buying Company Y at this stage is not value investing.  Those who buy at this P/E may feel they are also buying a bargain, as they projected that the earnings of Company Y is going to be great and the growth in earnings higher than the 15% per annum in the past.  Maybe they projected that the earnings will be growing  30% per year.   This is growth investing.  If you use PEG ratio of Peter Lynch, it is still available at a PEG ratio of < 1 (= 20/30).

Thus, is there a difference between value investing and growth investing, from a bargain perspective?   There appear to be 2 sides of the same coin.  Those buying into the stock using these strategies are of the opinion they are buying a bargain.   

However, there are differences too.   Historically, value investing has outperformed growth investing when assessed over a long time frame of investing.  But beware of such analysis.   Among the value investing stocks selection, many of the companies did not perform as expected and the fundamentals tanked.   Likewise, those stocks in growth investing, projected to grow at high rate and bought at high P/E, failed to deliver the growth and did not perform as expected.  

Let us learn from Buffett.  Stays with the company that you understand.  This company must have business with durable competitive advantage.  Its management must have unquestionable integrity.  Finally, buy them at a fair price.  

Yes, search out for the growing companies.  I too love such companies.   Above all, emphasizes the quality of the growth of business and its management.   Finally, look at the price (valuation).   Whether it is value or growth investing, buy growing companies at reasonable price (GARP). 

Tuesday 6 October 2015

Pareto Principle: 80-20 rule













Lets first understand the definition of 80-20 rule; according to Wikipedia the definition is:
The principle was suggested by management thinker Joseph M. Juran. It was named after the Italian economist Vilfredo Pareto, who observed that 80% of income in Italy was received by 20% of the Italian population. The assumption is that most of the results in any situation are determined by a small number of causes.
Now let's understand this definition in the language which is simple for you and me.
“20% of work delivers your 80% happiness and output.”


In the financial terms even this rules apply. Your 80% of income is produced by your 20% of activities. In your companies also 80% of the revenue is generated by 20% of products. Surely, this is not hard and fast rule but this can be applied in different ways like suppose in your company 80% revenue is generated by 20% of employee. The ratio can differ but it might be somewhat like 80-20.


Now lets try to apply this rule to Value Investor: In share market you hear a lot of news, every minute, every hour and every day. Some things happen in any part of any country and these news channel will surely try to connect it with economy from different perspective; that’s their role so I am not blaming them. But if you observe them carefully you will find that for a value investor in the long term only 20% of these news will might deliver his or her 80% results. So, as a value investor you must focus on those 20% of news which would be really helpful to you.

Monday 5 October 2015

Investing, the greatest business in the world.

Enhance Your Investing Returns By Not Swinging At Every Pitch

Summary

Building a core concentrated portfolio of 3-5 stocks is very advantageous over buying 20-30 individual stocks.
Not swinging at every investing idea will not only enhance returns but it will let you focus on building positions in your bests ideas.
Some of the richest investors in the past have gotten rich by putting all of their eggs in one basket or in 3-5 small baskets.
"I call investing the greatest business in the world, because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There's no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it". -Warren Buffett

Thursday 17 September 2015

iCapital Close End Fund: The Winners and the Losers over the last 10 years

This fund has done reasonably well since inception.  Its NAV has grown from RM1.00 in 2005 to the present NAV of RM 2.80 on 17.9.2015 (CAGR of 10.8%).

Its market price is RM 2.24 on 17.9.2015, giving a CAGR of 8.4% over the last 10 years.





Who are the winners?

1.  Those who have been holding the funds since inception.  They are the winners.
2.  Those who bought in 2008 and 2009, they are winners.  They would have bought icap close end fund at a low price.
3.  Yes, the fund manager has been a big winner in this fund.  This is to be expected as managing fund is a highly lucrative business indeed.




Who are the losers?

1.  Those who bought into icap at the time of over-enthusiasm, when icap was trading at a huge premium.  Those who bought into icap in 2007 and who did not hold the stocks till today were more likely to be losers.
2.  Those who bought the stock in the last 3 years.  They would have lost due to non-performance or poor performance of the fund over this period.   They would have enjoyed a better return from investing into their risk free FDs.
.


As for foreign investors who bought into the fund over the last few years, are they winners or losers?

Taking into consideration, the loss of value of the ringgit in relation to the US and the UK currency,  they may not be winners either.



Probably more shareholders burnt than benefited.

Peter Lynch delivered great returns while managing the Magellan fund for 13 years.  Yet, when he analysed the returns to the shareholders, the majority lost money!  Similarly, I am of the opinion, even today, the majority of shareholders who had bought and sold icapital close end fund were losers.   The winners are probably a minority who bought in the early years especially the initial investors into the fund at the time of launch, and who have hold onto the stocks till today.



The Fund Manager should stay focus.

Over the recent years, the fund manager of icap close end fund has been extensively involved in expansion into new funds and new geographical territory.   His activities appear to target growing his assets under management by his company.   His involvement in Investors Days, though commendable, is of doubtful benefit to the core shareholders of icap closed end fund.

As for hard core shareholders of icap closed end fund, their single focus is on the performance of the fund.  In particular, can the fund deliver >15% compound annual return over the long term.  Hopefully, by the year 2020, the year of reckoning, when the fund would have existed for a long period of 15 years and have been through a few up and down cycles, we can make a more objective assessment of the ability of the fund manager.

It is expected that most funds would just perform about the market return or slightly lower than the market return.  Will icap close end fund be able to deliver returns much higher than this?  Will icap close end fund be able to beat the returns of Buffett's during his earlier years of his involvement in stocks?



















*Special Dividend of 9.5 sen per share less Income Tax of 25% for the financial year ended 31 May 2013 is deducted from NAV.





















Local Index Warrant: Calculation of Settlement Price

The method of calculation of settlement price differs for stock warrants, index warrants and other types of warrants.


Local Index Warrants

The settlement level of an Index Warrant is the final settlement price of the index.



Settlement level of an Index Call Warrant:

Index Call Warrant = (Settlement Level - Strike Price) / Conversion Ratio

For example, the key terms of a XYZ Call Warrant are as below:

Underlying   XYZ Index (XYZ)
Warrant Type   Call
Strike Price  2,300
Maturity Date 29.12. 2016
Conversion Ratio 200

The settlement level of this warrant will be the final settlement price of the XYZ Dec 2016 Futures Contract on 29 Dec 2016.

If the settlement level of the XYZ is 2,500, then the settlement amount of this warrant will be:

= (2,500 - 2,300) / 200
= $ 1.00 per unit


Settlement level of an Index Put Warrant

Index Put Warrant = (Strike Price - Settlement Price) / Conversion Ratio

For example, the key terms of a XYZ Put Warrant are as below:

Underlying   XYZ Index (XYZ)
Warrant Type  Put
Strike Price  2,200
Maturity Date  29 Dec 2016
Conversion Ratio 200

The settlement level of this warrant will be the final settlement price of the XYZ Dec 2016 Futures Contract on 29 Dec 2016.

If the settlement level of the XYZ is 1,900, then the settlement amount of the above warrant will be:

= (2,200 - 1,900) / 200
= $ 1.50 per unit.

Wednesday 16 September 2015

Decoding a Warrant Name

Warrant Name
Underlying
Strike Price
Issuer
Warrant Type:  European or American
Warrant Class:  Call Warrant or Put Warrant
Expiry Date


Other Terms
Warrant Price
In the Money/At the Money/Out of the Money (Strike Price > or = or < Underlying Price)
Maturity: Short Term < 3 mths, Medium Term 3 to 6 mths, Long Term > 6 mths
Underlying Price
Days to Maturity
Implied Volatility
Interest Rates
Dividend
Historical Volatility
Conversion Ratio
Turnover
Outstanding Quantity
Premium:  positive, negative (discount), shrinking
Effective Gearing
Gearing
Delta
Vega, Gamma, Rho
Tick value
Face value
Bid/Ask Spread
Settlement Price

Stock Warrants:  Stock Put, Stock Call
Local Index Warrants:  Index Call Warrant, Index Put Warrant
Foreign Index Warrants:  Call or Put
Currency Warrants

Last Trading Day
Expiry Date
Payout Date