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iCapital: discount to NAV - M.A. Wind

Tan KW
Publish date: Thu, 12 Dec 2013, 01:45 PM
Tan KW
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Good.

Wednesday, 11 December 2013

 
On BFM an interesting talk about iCapital, the only closed end fund on Bursa Malaysia:

NOT THE LEX COLUMN - Focal & iCap

I agree with what was said on the radio program. I am a long time investor in iCapital and the discount to its NAV is indeed pretty frustrating.

The solution (as also mentioned in the program) is quite simple and is used by a closed-end fund (in which I invested) in my home country The Netherlands:
  • when the stock trades below 95% of its NAV then the closed-end fund will buyback its own shares until the discount has narrowed;
  • when the stock trades above 105% of its NAV then the closed-end fund will issue new shares at market price, again narrowing the discount.
In practice, this worked very well, the share traded very close to its NAV.

The only other closed-end fund that was ever listed in Malaysia (Amanah Millenia Fund, before known as Amanah Smallcap Fund) was delisted and liquidated in 2007, also due to the persistent discount to its NAV. On a side note, the current Menteri Besar of Selangor, Tan Sri Abdul Khalid Ibrahim, was the Chairman.

I am not sure if it is allowed under Bursa's rules for closed-end funds to buy back its own shares and/or to issue new shares. If it isn't allowed then they could consider changing the rules, it might revive this fund type, which does have its own merits versus for instance open ended funds like unit trusts.
 

 

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2 people like this. Showing 4 of 4 comments

hooi

Short-term investor or speculator want to narrow the gap between share price and NAV quickly so that they can take profit. Icap.biz bhd will give long-term investor or shareowner high return when liquited in 2020!

2013-12-11 23:29

kcchongnz

High return if kept until 2020? Really? What is your basis of saying so? In relation to the broad market?

Lets check the data. The last 5 years, icap NAV rose by 100% whereas share price rose from RM1.34 to RM2.35, for 75% gain. The compounded annual rate (CAR) of return of the stock is 12%, not too bad. However, the broad KLSE grows from 876 to 1843, or 110%, or a CAR of 16%. This implies icap share price underperformed KLSE by 35% in the last 5 years, or 4% a year.

What about for the last one year? icap's NAV rose by 2.7% and its share price dropped by 0.8%. However, KLSE gains 11.6%.

So what makes you so sure that icap will provide you with high return till 2020 in relation to the broad market?

2013-12-12 07:11

Fat Cat Tim Buddy

hooi! if u listen to me and advise ur boss to buy 5% inari, now icap already can reward it shareowner la, need to wait till 2020!?

2013-12-12 07:27

sense maker

If many companies are traded below their Net Asset value, so should icap be unless its fund manager, TTB, can demontrate investing prowess expected of him and start paying dividend to convince investors to value icap at book value or a premium. In the long run, market is a weighing machine and this principle applies equally to icap.

2013-12-12 18:19

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