@bryantfc According to the Nobel Economic Prize winning M&M Theorem on corporate capital structure, dividend policy has no bearing on a company's market value. https://www.investopedia.com/terms/m/modigliani-millertheorem.asp#:~:text=The%20Modigliani%2DMiller%20theorem%20states,was%20introduced%20in%20the%201950s. For dividend paying companies, the role of dividends is as a signaling tool, an increase in payout is a signal that the company is optimistic on future earnings growth and vice versa. If a company can reinvest earnings at a higher returns than the cost of capital of its investors, like Berkshire, then not paying a dividend is optimal. And vice versa. Similarly, if the company's ROE is higher than what the market is rating it at, then a share buyback is suggested. For example, if the dividend yield is 5% and the company can borrow at 2.5% or lower, like during QE2, US companies were rushing to buy back their shares with cheap borrowings and boost their EPS and achieve higher share prices.
This is reposting of my earlier comment, because of typing errors: @bryantfc Dividend payouts will not have much impact on shareholders' wealth because the share price will theoretically adjust for it ex-dividend, so it is just left pocket and right pocket. However, just raising the share price by 20 sen by reducing the price discount to NAV is real money you can take to the bank, and it is a win/win thingy for TTB also as there is no reduction in management fees payable, unlike a dividend payout.
@bryantfc TTB's argument against dividends is that his counterpart (since he is supposed to be the Malaysian equivalent) WB's Berkshire also doesn't pay a dividend. iCapital's two previous dividends were one off, the first one is to use up the dividend franking credit, and the second one of 20 sen is a pacifier to shareholders before the AGM, a special Covid handout, like the Government's financial relief. @Noni, you said it, not me, haha. If TTB is not going to do it, shareholders can DIY with a liquidation. Your choice!
The elephant in the room is not NAV performance, but share price discount. Blaming it on shareholders is management passing the buck. There were 4 listed closed end funds in Singapore in the past, but all ended up in members voluntary liquidation because of persistent share price discount, which management was unable or unwilling to address.
Until the share price discount to NAV is normalised, shareholder returns based on NAV is academic. What you see is not what you get. There are plenty of other companies on Bursa selling at deep discount to NAV, how do their shareholders calculate their returns on investment?
BTW, the company was listed on 19 Oct 2005, didn't quite make it 18 years and 8 months yet. Want to give it a longer and more impressive track record? The same performance stretched over a longer period will reduce the CAGR.
The standard disclaimer of most fund managers is that past performance is no indication or guarantee of future performance. Why stop at only 15% per annum, why not 20%? What is the CAGR since listing? Anywhere near 15%?
@WilliamWilkerson You have to excuse TTB's memory some time as he has mistakenly said that the Slater Walker boys were also controlling Sime Darby during the late 1960's and early 1970's in a recent interview. Can't blame him, as he was only a school boy then, but already dabbling in the stock market.
For a fair comparison with a dividend yield of say 3 and 3.5% annually for the KLCI and compounding for 10 years, the dividends would generate an extra returns of 34.4 and 41.06% respectively. With compounding for 16 years, which is the duration for iCap since listing, the figures would jump to 60.5 and 73.4% respectively. Hardly a level play field comparison.
@cnman53 To be fair, you need to add back dividends paid out by the stock over the years when calculating returns. Cannot be like TTB, always comparing against the KLCI without adding back the dividend yield of the component stocks.
Of course, if the company, or rather TTB keeps fighting COL in court, the latter may decide it is not worth their while pursuing if they are not welcome and turn sellers one day. Then you can blame them for selling. They have been buying for more than 10 years, have the share price been falling all this while because of them?
If you ask any market commentator what causes share price movements, besides fundamental factors, the most basic explanation is supply and demand. When there are more sellers than buyers, prices get depressed. Why should buyers push up prices when there are plenty of sellers willing to sell at lower prices? COL's objective as buyer is to collect shares at the cheapest prices possible, why blame them for this?
With COL buying, share price (discount) went down, so without COL buying, as happening now because of the injunction, share price (discount) will go back up? For every share that COL bought, some local shareholders must have sold. Why not blame the sellers? If there were no sellers, COL would not be able to accumulate their block of shares in the first place.
Any finance student who has studied options pricing will tell you there is no such thing as a free call option with no expiry date. The longer the expiry date, the more valuable is the option. The authors of the BS Option Pricing model got a Nobel Prize for it. Anyone who can disprove it deserves another one.
@Nepo The 1.24 price discount can be attributed to the cash portion of the portfolio, the 'free call option' which is not earning anything for shareholders after paying management fee and tax. How do you put a price on it?
@Nepo, if you want to liquidate the fund, no need to wait till 2025 that long. All you need to do is to vote in a new Board of Directors and TTB will quit and close down the fund and take back the name with him.
COL wanted to buy more shares but is prevented by the company's injunction. So if share price goes up in the meantime, and the company loses on the injunction bid, damages may be payable to COL for missed bargains.
@Integrity There is no need to contact COL as the company's announcement to the exchange itself clearly provided the grounds of the High Court judgement: (1) The High Court finds that the Defendant is not a member of the Plaintiff and is therefore not caught under Clause 21(1) and 8(y) of the Plaintiff’s Constitution. The Plaintiff’s Constitution provides a clear meaning of “member” and thus, the High Court found that the mischief rule ought not be applied.
(2) The High Court takes note of the Plaintiff’s concern that the ultimate control in the shares of the Plaintiff is with the Defendant. However, the Court is not prepared to go beyond the four corners of the Plaintiff’s Constitution or to imply any term under the circumstances as this will cause confusion in the meaning of the word “shareholder”. In plain English, the court has found that COL is not a shareholder of the company as defined by its own constitution, which is the main point of contention in the company's action. As I have mentioned before, COL is not in the list of the substantial shareholders of the company, as per the annual reports. So if this now disputed by the company, then it has been publishing a false list of shareholders all this while. Is the company arguing that all of a sudden, COL becomes a shareholder, from zero to above 20% overnight?
@Nepo If iCapital is such a bargain, why aren't local investors increasing their shareholdings, as shown in this analysis of the 30 largest shareholders' movements over the years. Only major buyers are foreign funds, which now have overtaken the locals in the latest top shareholders list, and this is why the company is going to court to injunct them. https://1drv.ms/x/s!AgLvGZpm89Ysly1THGRIwnoteTOz?e=DFeF86
Both the SC and the courts so far have ruled that COL per se is not a shareholder of the company, hence the question of exceeding the individual shareholding limit did not arise. If 'control' can be deemed ownership, then all the GLCs and government institutional investment funds like EPF, Khazanah, PNB, Tabung Haji, LTAT are also owned by a single shareholder, i.e. the Government, and the same rules on ownership will apply.
Or better still, stop wasting time and money fighting COL in court, just let the funds buy to their heart's content. The SC and the court so far has decided that no one has breached the 20% individual shareholding limit.
The comparisons are made for this specific period solely because that is the only time the Dow Jones data are available readily on line, so it is entirely incidental, not on purpose. For different time periods, the comparisons will be and can be quite different.
KLCI only adjusts for capital changes of the component stocks, i.e. bonus, splits, rights etc, while a total returns index also include reinvested income, i.e. dividends. There is no easily available total returns index for Bursa, but for a while, there is the Dow Jones Malaysia Total stock market total returns index for the period up to July 2017. This computes the total returns of the total market, instead of just the selected index component stocks, both capital changes and reinvested dividends. A comparison gainst the iCap NAV and KLCI has been graphed here https://1drv.ms/b/s!AgLvGZpm89YslnheH4Pml_EpVbmN?e=fIjVkA
For any other listed company, shareholders' returns are measured by share price difference plus dividends received, if any. NAV is an academic number as long as it cannot be cashed in. Why keep comparing against the market index which excludes dividends declared by the component stocks? That's around 4.31% for the KLCI and 3.77% for the Emas index, which if added back, will prove the fallacy of superior iCap share price performance against the index. Index Characteristics Attributes FTSE Bursa Malaysia KLCI FTSE Bursa Malaysia EMAS Number of constituents 30 312 Net MCap (MYRm) 492,360 700,485 Dividend Yield % 4.31 3.77 Constituent Sizes (Net MCap MYRm) Average 16,412 2,245 Largest 66,532 66,532 Smallest 3,444 15 Median 11,170 310 Weight of Largest Constituent (%) 13.51 9.50 Top 10 Holdings (% Index MCap) 62.64 44.03
This is how upside potentials are calculated from price discount to NAV: A 30% discount means 70% cost, 30% discount = 43% upside A 35% discount means 65% cost, 35% discount = 54% upside A 40% discount means 60% cost, 40% discount = 67% upside. At $2.17 market price and 3.37 NAV, price discount = 35.6%
@WingsOfMercy Thanks for the comparisons. If it is any consolation, there is no performance fee payable by iCapital like in the other funds mentioned. Otherwise, such fee is payable from a zero base, i.e. from the first dollar of NAV increase over the high water mark. So for funds that are placed in FD, the 10% performance fee is payable on top of the management fee, all without any management effort. The huge trade off is that the units can be redeemed at NAV any time after 1 year without the back end load redemption fee of 5%. If an iCapital shareholder sells his share in the market, the NAV discount accrues to the buyer, but if the company buys his share through a share buy back program, the discount is captured by the company and accrues to the remaining shareholders as an increase. How many shares are out there in the market where you can buy and sell (i.e. cancel) for an immediate gain of 50%? There are now mainly 2 classes of shareholders in the company. Those who are locked in because they cannot bear the loss of the price discount, and those who are attracted by the deep price discount. Even though they may appear to be on opposite sides, they are actually on the same page, both aiming for the share price to close the discount gap.
Another thing that shareholders may not realise is that while the 1.5% p.a. management fee is based on NAV, the value to shareholders is based on market price, and with the current discount at around 40%, the effective cost of the management fee is around 1.5 times the nominal amount, or 2.25% p.a. So the price discount has a double whammy effect on shareholders.
A lot of shareholders are now locked in involuntary bondage because of the deep price discount. They are not happy with holding the shares, but to leave now means giving up on more than $1 in NAV at the current market price, so have no choice but to stay and hope for things to improve. Do the BOD care? They pass the buck to the manager. Like in the present political situation, if voters keep voting for the incumbents, they only have themselves to blame. These shareholders are TTB's safe deposits, just like immigrant workers, with their passports held by the agent/management, in bondage.
In more developed markets, passive funds have overtaken active funds in market share because the latter have not outperformed the former after costs. Singapore used to have 4 CEF managed by the Big 4 Banks (reduced to 3 later following the merger between OUB and UOB), but one after another, they all went into voluntary delisting because they have no solutions to persistent price discount to NAV. Same for Amanah Small Cap Fund and the two AHP property trusts here. iCap will be the last of the Mohicans, once foreign vulture funds smell blood in the water.
@Integrity - According to the latest 2021 30 largest shareholders list, the local investors have 25 million shares, foreign shareholders have 29 million shares, so the swing votes depend on the smaller shareholders out there.
@Integrity - As long as shareholders can only receive market price and not NAV when they want to realise their investments, shouldn't share price be more important than NAV as a measurement of fund performance? NAV is only realisable upon liquidation of the fund, otherwise, it is just an nice to know number, you can't take it to the bank.
@Nepo For the record, all that COL has done is to vote against the election of certain directors at AGM, which is a basic right of every shareholder. They have not indicated any intention to "fire TTB and liquidate iCap". It is just someone's paranoia and scare mongering. If they had wanted to do so, could have done it already any time after acquiring more than 10% shareholdings for its funds under management.
@integrity....COL is the only party (not shareholder) that can call for an EGM to change the BOD any time, which is an existential threat to TTB. The present court case is academic as even if won, the cap is still at 20%, so won't make any difference. The next threshold is the 33% parties in concert rule when a MGO must be made. By which time, the battle would have most probably been lost already, so this is essentially just a rear guard action to prevent this.
The previous injunction was given on the undertaking by the company to pay damages arising from it. If the share price goes up while COL is prevented from buying, that's potential damages if the company loses the case.!
The company, or rather, TTB using company's money, to appeal against the High Court's decision that in law and the company's own constitution, COL is not a shareholder. It has yet to explain why is it against the shareholders' interest to have foreign funds, not COL, as shareholders? It is going to be an expensive and futile attempt to argue the point that COL is a shareholder, as defined by the four corners of the relevant documents.