Posted by observatory > 2020-07-21 18:23 | Report Abuse

Can anyone explain the background of the dual listing project?

According to Q3 financial results (quarter ending Feb 29, 2020), ICAP registered a loss after taxation of RM6.3m, or a loss of 4.52 sen per share.

The main reason was found in note B1 (page 14). Expenses of RM6.68m were recognized for the dual listing project. However no explanation or progress update were given by the Fund Manager.

The Fund Manager was more keen to remind "market-timing investors" about Covid-19, most serious global economic contraction since 2019, and Malaysia political turmoil (refer Note B3, page 15-16).

But applyng my own value investing approach to ICAP, I'm more interested to read ICAP plan on the dual listing. I want to know the progress and how it might be affected by current situation.

Can anyone explain this dual listing stuff?

How can dual listing possibly turn around ICAP fortune given until the last reporting quarter ICAP still had 60% of asset tied up in cash?

Being cynical, I do notice cash also pays towards the management and advisory fee of 1.5% per annum.

Posted by Nepo > 2020-07-23 11:57 | Report Abuse

In this shark market, you can always trust Ttb. Although he is conservative, but all his stocks selection were purchased with the best interest of the co.

One good example is Bioalpha Holding Bhd

Posted by observatory > 2020-07-23 23:51 | Report Abuse

@Nepo,
Instead of leaving it to trust, let's focus on the specific subject of dual listing. As value investors, let’s approach it dispassionately based on the facts we already know and debate over the merits.

To recap, the dual listing project incurred RM6.68m in the last reporting quarter. The expense was 1.6% of net asset value then, or close to 5 sen of NAV.

This was a sizeable sum for a small fund like ICAP. Given the importance, curiously, I could not find a single word mentioned about the project plan or progress in the annual reports of the past 5 years. After reading 5 annual reports I just gave up.

It is also amazing that no update was given in the latest quarterly report after 1.6% of net asset had been spent. Instead TTB chose to talk about Covid-19, Malaysia politics, Benjamin Graham and 1929 Great Depression in his long commentary.

I bet if Graham were alive today, he would not have approved such a lack of disclosure. What more this was from a self-styled bottom-up value investor who supposedly would demand the highest disclosure standard in his invested firms.

My second concern is about the merit of dual listing. After further digging, I found a 2012 NST article where TTB said dual listing would narrow the fund NAV discount. I note TTB only mentioned his idea before 2012 AGM in response to the threat of City of London gaining board seats.

But how would dual listing narrow the discount? TTB did not elaborate. Another sign of insufficient transparency.

But we can walk through his idea. Let’s assume ICAP has a second listing in Singapore. New shares are created in SGX. Will all the new shares be distributed to existing Malaysian shareholders, such that they can trade in both Bursa and SGX? But if trading in one bourse could not close the discount, how could dividing the trading volume in two bourses do the trick?

OK, may be new shares will be sold to new Singaporean investors through an IPO. But how could ICAP justify raising fresh money from new investors when it has not made use of its existing cash pile that has been sitting in the bank for over a decade? And I also don’t see how having another set of shareholders could narrow the discount.

If TTB acts in the best interest of ICAP shareholders, he owes them a detailed explanation before spending their money on the project!

He should also tell shareholders how much more he needs to spend after the RM6.68m expenses.

Posted by fong7 > 2020-07-24 07:10 | Report Abuse

#Nepo, are you sure you know what you were talking about? TTB hold some of the worst company to hold when their businesses show years (if not decades) of earnings falling perspectives, such as Parkson and Bstead. And then, you talked about TTB being "conservative". You must understand, TTB doesn't lose anything by "conservative", he continues to receive huge amount of manager fees from ICAP shareholders although his "conservative" made ICAP one of the worst performer in past 3-5 years. ICAP shareholders has benefit nothing from TTB being "conservative" on ICAP (but TTB benefits himself huge instead, which is the opposite of many world famous companies which pay the CEO according to the company's share price performance).

Posted by fong7 > 2020-07-24 07:15 | Report Abuse

Regarding dual listing. Some of you "trusted" TTB and believe what he told you. TTB said dual listing will unlocked ICAP's valuation because foreigners will appreciate his way of "value investment" and give ICAP a satisfactory valuation. The point is, you still trust what he said? If you follow his interview with foreign financial TV stations, you will see that those foreigners didn't look admiring his opinions at all. In fact, from their expressions, I saw "big doubts" on their face. I think TTB felt it too, that's why he keeps delaying the dual listing thing year after year. What if, the foreign listed ICAP has even worse valuation than bursa listed ICAP? TTB can die already, no more excuse to blame and must face the real world.

Posted by Vc Looi > 2020-07-24 08:23 | Report Abuse

Too famous and too kiasu, year after year cannt even find a undervalue company what wrong with that ? Market fall last spring also never managed to collect any ..for him only ringgit is worth the talk no stock

Posted by Nepo > 2020-07-24 12:02 | Report Abuse

@observatory, no more news regarding dual listing. I think it is due to the bad sentimental market or technical problems..maybe the application to dual-list in Singapore, for instant, is rejected by SGX..hopefully can dual-list in China..

Posted by observatory > 2020-07-24 13:27 | Report Abuse

@Nepo,
It will be better for ICAP shareholders if the dual listing just dies a natural death.

I suspect TTB floated the idea of dual-listing in 2012 to fend off the attempt by City of London to control the board, which would have forced the company to return excess cash to shareholders. It was probably a not well thought through diversionary tactic by TTB at the time.

Asset management companies grow by expanding internationally. That was why Aberdeen Standard, Franklin Templeton, Nomura, Principal and the like expanded into Malaysia. The expansion benefited their company shareholders. However, their unit trust/ mutual fund investors did not benefit from the expansion. Their fund investors certainly did not pay for the expansion.

For ICAP case, due to the lack of transparency, I see only confusion and potential conflict of interest.

ICAP shareholders are fund investors. The company ICAP engages the service of a fund manager called Capital Dynamics Asset Management Sdn Bhd, where TTB is the founder and MD.

ICAP shareholders do not share the profit of Capital Dynamic, which is another private company and a separate entity. ICAP shareholders do not benefit from Capital Dynamics gaining more business overseas.

Without explaining how the whole scheme works, why should ICAP shareholders pay RM6.68m or close to 5 sen NAV for the dual listing project? Besides, the information is buried in one sentence in the Q3 report footnote! This is not good corporate governance.

ICAP board of directors, headed by Chairman Datuk Ng Peng Hay, have the fiduciary duty to protect shareholders’ interest and explain how the spending will benefit shareholders. They simply cannot outsource the job to TTB or Capital Dynamics Asset Management, which legally is just a fee collecting service provider to ICAP.

I look forward to a full disclosure in the next quarterly report, annual report and AGM.

I hope whoever working in ICAP who happens to read this message will convey back to ICAP management and its board.

Posted by ahhuat56 > 2020-07-24 21:02 | Report Abuse

Before making any false accusation, one should get the facts correct and find out why the dual listing project come about.

Posted by ahhuat56 > 2020-07-24 21:07 | Report Abuse

Not all business ventures will be successful, some will fail. This is a fact of life.

Posted by stockraider > 2020-07-24 21:07 |

Post removed.Why?

Posted by ahhuat56 > 2020-07-24 21:23 | Report Abuse

Based on the AGM I attended, the shareholders of ICAP knew about the dual listing project from day one. All were very keen then and a lot questions were asked. Too bad the project is not successful.

Posted by observatory > 2020-07-24 23:40 | Report Abuse

@ahhuat56,
I’ve already searched through every annual report since 2010. Not a single word was mentioned about the dual listing project. No written explanation on how it worked. No progress update.

You mentioned you heard of it in the AGM. I don’t dispute that. I know shareholders asked about the project in AGMs. A NST article in 2012 also reported it. Another article in 2014 mentioned the project was still in “final stages”. But none of the articles could tell how dual listing was supposed to work.

Why the explnation was not provided in the annual reports, which is the most important document for management to communicate to shareholders annually?

Why such an important project had to exist in the memory of shareholders who happened to attend the AGM? And how much details had been revealed?

Can anyone give the definitive account of how dual listing is supposed to work and how will it benefit shareholders?

All my comments above may be irrelevant if the dual listing project was dead years ago with no consequence today.

But this is not the case.

In the latest reporting quarter ended on 29/02/2020, ICAP registered a loss after booking dual listing project expense of RM6.68m or close to 5 sen NAV per share.

Mind you this is no false accusation. You can check out yourself in Note B1, page 14 of the quarterly report. There was just a one liner that ‘recognition of RM6.68 million of dual listing project expenses’.

Has the project been restarted recently? If the answer is yes, what form will it take? How much additional spending in future quarters is expected?

Could it be that the project expenses were capitalized years ago and this was a write-off (given time is bad why not get all the bad news out in one go)? The problem with this explanation is ICAP has zero non-current asset to write off other than investment holding.

But my point is why don’t the management be forthright about the spending and give at least a brief update on the project in the quarterly report? Having spent a sizeable amount of shareholders’ money recently, the project has more relevance to shareholders than repeating the wisdom of Benjamin Graham!

Isn't management transparency a quality treasured by value investors?

Posted by vidusaka > 2020-07-25 13:07 | Report Abuse

observatory must be working for CoL aka london boys or paid by them to write - they are after all world famous for conducting media campaigns.

after all, agm of icap is coming soon so scared to say in media or risk getting sued for defamation (https://www.investegate.co.uk/capital-dynamics-sdn/rns/high-court-s-decision-on-defamation-case/201909020700087970K/) - so say in this forum to con other investors

if icap is so bad then why are the london boys buying non-stop? are the ang-mohs so stupid meh? or our local investors so blind?

Posted by ahhuat56 > 2020-07-25 13:36 | Report Abuse

I don't know who decides what goes into an annul report. I thought there is a format one must follow. Maybe it is because the dual listing project is a price sensitive information and TTB is forbidden from talking openly about it publicly until things are more certain. This is what I have been told during the AGMs and roadshows that were conducted then. We didn't even know that Hong Kong was the other stock exchange.

The main objectives of the dual listing project were to narrow the discount of ICAP which City of London has been bugging about and allowed investors to invest overseas. Investors of ICAP were especially keen of the overseas exposure feature.

Posted by ahhuat56 > 2020-07-25 13:44 | Report Abuse

I guess since shareholders are the ones that asked TTB to do the dual listing project, there is nothing to complain about in paying for the expenses incurred.

Posted by jeydan89 > 2020-07-25 15:35 | Report Abuse

ICAP is very undervalued and attractive buy, that's why CoL is buying non-stop.

Posted by observatory > 2020-07-25 17:19 | Report Abuse

@ahhuat56,
An update about dual-listing project is not price sensitive. For example, if you go to Petronas Chemical IR websites, you can find presentation and webcast where management updates status of on-going RAPID project and their plan for plant shutdown in coming months. The key is disclosure. Companies with good corporate governance will make sure such important information is publicly available for all investors.

If quarterly update is too much of a hassle, companies can still update their shareholders in the Chairman’s statement and CEO’s/MD’s statement section of Annual Report. This is the norm for companies with good corporate governance.

Posted by observatory > 2020-07-25 17:22 | Report Abuse

@ahhuat56,
You said shareholders were the one asking TTB to do dual-listing. TTB merely executed their wish. So there is nothing for them to complain about paying the RM6.68m recorded in Q3 FY2020.

Sorry you got it the other way round. Refer New Straits Times article on Nov 7, 2012. It reported that

quote
Capital Dynamic Managing Director Tan Teng Boo said the fund will be listed in both Kuala Lumpur and another country … “As a fund owner, you will have double benefits of narrowing the discount of iCapital.biz share price as well as allowing shareholders to invest globally. However the fund, which has been our baby for the past three years, will not be launched if the three new directors (from City of London) are elected to the board,” Tan told reporters at its headquarters here yesterday.
unquote

Need I say more?

Posted by observatory > 2020-07-25 17:25 | Report Abuse

@jeydan89,
You said ICAP is undervalued. Yes, it might be undervalued considering its NAV as of Jul 24, 2020 was RM2.88 per share, but it was traded at a closing price of RM2.00. A 30% discount to its NAV!

The trouble is ICAP has been traded at increasing discount since 2008. Based on the filing to Bursa, in the last week of 2008 it was traded at 10.9% discount. By 2013 the discount grew to 20%. By 2018 it was 23.3%. Now it is 30% discount.

ICAP is a classic example of value trap. That is why it attracted activist investors like City of London to accumulate in order to enter the board, hoping to unlock the value by forcing management to return excess cash to shareholders, which the management has resisted for years.

If you like these types of investment you may want to own Media Prima and Star Media. Their current share prices are substantially below their net cash position. By such yardstick, they are even more undervalued than ICAP!

Posted by observatory > 2020-07-25 17:32 | Report Abuse

@vidusaka,
I lay down my reasons, backed up with facts extracted from ICAP filing with Bursa, on why the company disclosure is lacking.

Instead of challenging my with counter facts and reasons, you accused me of being paid by City of London (CoL) without evidence. You went on to accuse me of conning other investors!

I probably touched a raw never just because I questioned ICAP management practice!

For record, I have no relation with COL. I also know none of their management and none of their staffs.

I’m a believer in value investing. I dive deep into individual companies. You may check my profile and past comments. Although I don’t usually comment in this forum, you can still find dozens of my past comments discussing on other companies financials, strengths and weaknesses.

You, on the other hand, has posted your very first comment in this forum accusing me of being paid by CoL. That makes me wonder whose interest you’re trying to protect!

Curiously, a few other forum participants have also commented exclusively on ICAP but not other companies. But I give the benefit of doubt that their investment may be mostly or even wholly tied up with ICAP.

But your case is interesting.

Such observation has aroused my curiosity. Now I’m going to study more about ICAP past saga with CoL. I’ll be back with another writing.

Posted by ahteck85 > 2020-07-25 19:15 | Report Abuse

@observatory
There are supporters and opponents to ICAP, not a big surprise.
The main arguments here revolve around two key points - big discount to NAV (what causes it?) and TTB's value investing methodology (whether it is still relevant today).
For the former, I believe it has got to do with COL and Laxey Partners. the price and vol trade in such a peculiar manner that they are the only "makers" in this counter.
For the latter, it is up to individual - every stock has its own risk/return profile. Some argue that they can generate higher return and my suggestion for them is to sell ICAP and look at other stocks. If you ever visit the AGM, most of the investors are retirees and they cannot afford to bet on counters like the glove makers. ICAP's portfolio is extremely defensive and I have personally added a few counters to my personal portfolio, on top of ICAP.

Posted by observatory > 2020-07-25 20:47 | Report Abuse

@ahteck85,
Many company AGMs are attended mostly by retirees anyway.

But I agree with your point. ICAP shareholders are mostly long-term followers of iCapital. Some have been subscribers to its newsletter before internet has even become available in Malaysia. Capital preservation ranks high for these retirees.

However, on the other hand, I would also argue that regular income distribution is equally important for retirees. That is why many retirees will hold portfolios of blue-chip dividend stocks on long term basis.

But I reckon not all retirees are comfortable with stock picking. They entrust ICAP, the only closed end fund in Bursa for their investment. Sadly, ICAP has never paid dividend since its inception in 2005, except once in 2013.

There is nothing wrong for companies that don’t pay dividend as long as the companies can invest their accumulated cash wisely in high return growth business, generating more cash in the future. The market rewards such companies by paying a premium for its share. Investors who need to raise cash can just sell a portion of their shareholding.

Sadly, ICAP is not one of these growth companies. ICAP management chooses to park its huge cash pile in banks for over a decade, now yielding annual return of 3% or even less.

In fact the 3% bank interest has to be net off against 0.75% + 0.75% = 1.5% management and advisory fee on the cash principal; and the bank interest itself incurs 24% Malaysia corporate tax. Shareholders’ return on the cash in bank is actually less than 1% annually!

Following this strategy, the shareholders have waited for 13 years for the great market crash as anticipated by the fund manager. Like a broken clock that forever points to 6 'o clock, the great crash will eventually come, if the dip in Mar 2020 did not count as one. Yes, when the great crash comes the fund manager could pick up cheap stocks. But what about the opportunity cost lost in the 13 years interval?

In fact, any retiree who is not comfortable with stock picking will be better served by keeping say half of their cash in FD (where interest is tax free), and invests the other half through open ended unit trusts on dollar cost averaging basis.

Posted by observatory > 2020-07-25 20:50 | Report Abuse

Further to my comment above. Note when I started commenting on ICAP here, I've avoided questioning management investment strategy. I talk about its strategy now only in response to comments from others.

What prompted me to comment on ICAP in the first place is the RM6.68m dual-listing project expenses incurred in Q3 FY2020. No explanation was given regarding the project, which many have assumed to be dead long years ago. No written explanation can be found over these years on how the dual listing is supposed to work, and how it could close the discount gap.

In my view, the lack of disclosure and lack of transparency is more troubling than ICAP investment strategy.

But I don’t blame TTB and his Capital Dynamic for that. After all, TTB/ Capital Dynamic is just a fee collecting service provider to ICAP. What I question is how well the company directors have carried out their fiduciary duty and with shareholders’ interest in mind!

Posted by observatory > 2020-07-25 20:53 | Report Abuse

By the way, I have not even mentioned that stock exchange filing shows ex-director Madam Leong So Seh, the member of Audit Committee and Chairperson of Nomination Committee, resigned on 24 Feb 2020 on ‘personal and health reason’.

The resignation came just 5 months after she was reelected on 21 Sep 2019.

Posted by JohnDough > 2020-07-26 17:05 | Report Abuse

“My continual objective in managing partnership funds is to achieve a long-term performance record superior to the Industrial Average.

I believe this Average, over a period of years, will more or less parallel the results of leading investment companies. Unless we do achieve this superior performance there is no reason for existence of the partnerships.

However, I have pointed out that any superior record which we might accomplish should not be expected to be evidenced by a relatively constant advantage in performance compared to the Average.

Rather it is likely that if such an advantage is achieved, it will be through better than average performance in stable or declining markets and average, or perhaps even poorer than average performance in rising markets.

I would consider a year in which we declined 15% and the Average 30% to be much superior to a year when both we and the Average advanced 20%. Over a period of time there are going to be good and bad years; there is nothing to be gained by getting enthused or depressed about the sequence in which they occur.

The important thing is to be beating par; a four on a par three hole is not as good as a five on a par five hole and it is unrealistic to assume we are not going to have our share of both par three’s and par five’s.”


Buffett Partnership 1960 Letter – Warren E. Buffett

Posted by observatory > 2020-07-26 19:34 | Report Abuse

I’m an admirer of Warren Buffet too.

Like ICAP, Buffet’s Berkshire Hathaway can be also be thought of as a closed end fund, one with an insurance business bolted on. But the similarity ends there.

(1)
Warren Buffet draws an annual salary of US Dollar 100,000 per annum despite managing a half a trillion-dollar company. Buffet’s interest is aligned with Berkshire shareholders because almost all his net worth is tied up in Berkshire shares. Buffet becomes one of the richest men in the world because of outperformance in Berkshire shares. Not because of management fee.

https://www.investopedia.com/ask/answers/020915/what-warren-buffetts-annual-salary-berkshire-hathaway.asp

(2)
Berkshire Hathaway share price has traded at a premium of 20% or more to its book value.

https://ycharts.com/companies/BRK.A/price_to_book_value

(3)
Berkshire has a portfolio of superior companies. Those companies generate cash faster than Buffer can find suitable investment targets. What does Buffet do with Berkshire fast accumulating cash pile? He buys back Berkshire shares. Berkshire might have bought back more than $5 billion in recent weeks.

https://markets.businessinsider.com/news/stocks/warren-buffett-likely-spent-5-billion-on-berkshire-hathaway-buybacks-2020-7-1029387230#

Posted by vidusaka > 2020-07-27 16:28 | Report Abuse

observatory, you being paid in pound sterling by number of post or by number of words ah?

since you a fan, should spell buffett properly, if not london boys may deduct payment, they love to cheat

Posted by observatory > 2020-07-27 17:50 | Report Abuse

@vidusaka,
Another baseless accusation?

I readily admit that I’ve made a mistake in my spelling. Sadly, I see some people are still in denial mode despite years of contrary evidence.

This is your second comment ever in this forum. Both are attempts to deflect legitimate criticism against ICAP.

“Paid by posts or by words?” This question probably suits you.

Apart from spelling, any other factual mistakes that you have found in my posts?

Posted by stockraider > 2020-07-27 18:06 | Report Abuse

The problem of TTB is he does not know how to cut loss loh...!!

He still hang around his losers like Parkson & Boustead but he sold almost all his winners like Vitrox mah...!!

Why TTB water the weeds & pull the flowers leh ??

Posted by iPilot50 > 2020-07-27 18:47 | Report Abuse

The likes of stockraider and fong7 are utter trash so I don't really read them seriously. I only read their assessment as an entertainment.

But I think observatory raised a good point on dual listing fees. I think it's a business failure on their part, but for a fund the most important measures to judge are the long-term investment return and choice of companies that they bought their shares. All companies will have business failures but it is rather whether you believe that they can sustain in the long term that matters. It's true that TTB has been maintaining large percentages of their portfolio in cash for years, but that in and of itself is an investment decision. It's like let's say you yourself have 10 million in cash to spend. I don't think you would take all 10 million and butcher it in the stock market. Maybe not even 7 million. So it really depends on what TTB thinks is a good margin to invest its cash. Whether you believe that is a wise decision or not is up to you.

I don't think its fair to compare TTB and Buffett. Berkshire Hathaway is not a fund and usually it buys an enormous stake in the company or even the whole company, while iCap is a closed-end fund that can only buy a defined percentage of a company in the open market.

And I think your calculation of the returns is abit wrong. Currently the NAV has an annual compound return of around 8% in about 15 years. And I think that has already been net of the 1.5% yearly fees. Plus the 1.5% fees is lower than open-ended fund's fees.

Posted by observatory > 2020-07-27 23:17 | Report Abuse

@iPilot50,
I appreciate your view. Although I may not agree with your conclusion, at least we seem to be able to engage in a civil conversation, a discussion based on facts and reasons.

Pardon me because I’m going to write a page full arguing against your position. But nothing personal. This is my approach. I welcome opposite and contrarian views that prove me wrong and point out my blind spot.

First, I agree that the fund long term return is more important than dual listing project expenses. If last quarter RM6.68m was a one-off expense (the quarterly report didn’t spell out), the expense represented ‘merely’ 1.6% of net asset, or about 1 year in fee.

The reason I raised the dual listing expenses was about transparency rather than the spending. But my criticism is reserved for the board of directors rather than fund management. It should be company directors’ duty to demand and ensure a high standard of disclosure.

Posted by stockraider > 2020-07-27 23:24 | Report Abuse

Rubbish attitude this pilot50 loh...!!

Raider highlight the weaknesses of TTB bcos unable to cut losses but sold its winner short mah...!!

TTB should learn from his mistake instead of denying loh...!!

It is obvious mah...TTB is still holding on its losers like Parkson & boustead mah....!!


Posted by iPilot50 > Jul 27, 2020 6:47 PM | Report Abuse

The likes of stockraider and fong7 are utter trash so I don't really read them seriously. I only read their assessment as an entertainment.

But I think observatory raised a good point on dual listing fees. I think it's a business failure on their part, but for a fund the most important measures to judge are the long-term investment return and choice of companies that they bought their shares. All companies will have business failures but it is rather whether you believe that they can sustain in the long term that matters. It's true that TTB has been maintaining large percentages of their portfolio in cash for years, but that in and of itself is an investment decision. It's like let's say you yourself have 10 million in cash to spend. I don't think you would take all 10 million and butcher it in the stock market. Maybe not even 7 million. So it really depends on what TTB thinks is a good margin to invest its cash. Whether you believe that is a wise decision or not is up to you.

I don't think its fair to compare TTB and Buffett. Berkshire Hathaway is not a fund and usually it buys an enormous stake in the company or even the whole company, while iCap is a closed-end fund that can only buy a defined percentage of a company in the open market.

And I think your calculation of the returns is abit wrong. Currently the NAV has an annual compound return of around 8% in about 15 years. And I think that has already been net of the 1.5% yearly fees. Plus the 1.5% fees is lower than open-ended fund's fees.

Posted by observatory > 2020-07-27 23:26 | Report Abuse

Second, I agree technically it’s the fund manager’s prerogative to keep most of ICAP asset in cash, even for over a decade. Technically the fund prospectus does not forbid TTB from holding as much cash as he wants, and as long as he feels necessary.

Having said that, holding a large cash position is a market timing behavior. Holding large cash poisition for years is a long term market timing behevior in anticipation of stock market crash.

Market timing is common among macro, top-down money managers. But large cash position for over a decade is at odd with bottom-up, value-oriented managers. TTB’s past commentaries give the impression that he is in the latter camp. But his action shows he is the former.

It should be the board of directors’ duty to review and question this contradiction. But I doubt they do.

I also don’t agree with your analogy comparing ICAP investment strategy with an individual with 10 million dollars. Yes, an individual should diversify and should have an asset allocation plan. But an equity fund should not (note we’re not talking about a balanced fund here, which has a pre-defined bond to equity ratio). An equity fund like ICAP should not put another layer of undefined asset allocation on top of individual investors' personal allocation.

For example, ICAP average cash holding is about 2/3 for the past few quarters. An individual may have an allocation plan of 50% cash and 50% equity. If he invests all his equity with ICAP, ICAP has effectively altered his allocation to less than 20% equity and more than 80% cash.

Posted by stockraider > 2020-07-27 23:31 | Report Abuse

Yes Fund manager has the perogrative to hold all cash loh...!!

But then unit holders have the right sack this lousy fund manager mah..!!

Thats the reason we must support City Of London campaign to sack this useless TTB loh....!!

Only by helping city of London we can end our misery mah..!!


Posted by observatory > Jul 27, 2020 11:26 PM | Report Abuse

Second, I agree technically it’s the fund manager’s prerogative to keep most of ICAP asset in cash, even for over a decade. Technically the fund prospectus does not forbid TTB from holding as much cash as he wants, and as long as he feels necessary.

Having said that, holding a large cash position is a market timing behavior. Holding large cash poisition for years is a long term market timing behevior in anticipation of stock market crash.

Market timing is common among macro, top-down money managers. But large cash position for over a decade is at odd with bottom-up, value-oriented managers. TTB’s past commentaries give the impression that he is in the latter camp. But his action shows he is the former.

It should be the board of directors’ duty to review and question this contradiction. But I doubt they do.

I also don’t agree with your analogy comparing ICAP investment strategy with an individual with 10 million dollars. Yes, an individual should diversify and should have an asset allocation plan. But an equity fund should not (note we’re not talking about a balanced fund here, which has a pre-defined bond to equity ratio). An equity fund like ICAP should not put another layer of undefined asset allocation on top of individual investors' personal allocation.

For example, ICAP average cash holding is about 2/3 for the past few quarters. An individual may have an allocation plan of 50% cash and 50% equity. If he invests all his equity with ICAP, ICAP has effectively altered his allocation to less than 20% equity and more than 80% cash.

Posted by observatory > 2020-07-27 23:36 | Report Abuse

I compare TTB to Buffett only because TTB likes to quote Buffett TTB likes to mention Buffett’s words to rationalize his position.

The ICAP annual report describes TTB as
“As a result of his fascination with investing, he has the unique ability of blending his investing skills with his business experiences. As Warren Buffett, the world renowned investor, said, “It’s been awfully good to have a foot in both camps.” “

With such overture, it's only fair to invite comparison.

I agree ICAP is not exactly the same as Berkshire, even though both are traded in stock market and both are in the business of investing money (with Berkshire having an extra insurance business)

Yes, ICAP is much smaller than Bershire. But the small size should have worked towards ICAP’s advantage.

ICAP could invest in companies without immediately revealing its position as long as its stake is below 5%. ICAP can also invest or dispose a small stake in small companies without moving the market price against it. Not for Berkshire. Any small bet for Bershire moves the market.

Rightfully, skilled fund managers who manage small funds should be able to outperform. Usually they only become mediocre when their fund sizes grow too large.

But we don't see that in ICAP.

Posted by observatory > 2020-07-27 23:44 | Report Abuse

A clarification of my return calculation. What I’ve stated is the cash portion, which made up on average about 2/3 of NAV in the past several quarters.

For each RM100 of cash parked in bank, ICAP receives about RM3. Management & advisory fee for that RM100 cash principal is about RM1.50. The roughly RM3 annual interest received is taxed at 24% i.e. RM0.72. In other words, for the 2/3 of NAV parked in cash, each RM100 of cash returns only RM3 – RM1.5 – RM0.72 = RM0.78, or less than 1% of principal.

Thererfore the other 1/3 of the NAV tied up in equity investment has to work very hard to increase overall return. This explains the underperformance in the past decade.

Curious to find out the overall annualized return, I’ve extracted the following data:

Inception: Oct 2005: NAV RM1.00, Price RM 1.00
10 years ago: 22 Jul 2010: NAV RM2.25, Price RM1.83
Special dividend: Sep 2013: RM0.095
Latest weekly update 22 Jul 2020: NAV RM2.88, Price RM2.00

Applying Excel formula XIRR, this is the results:

Annualized NAV return since inception 7.8%, price return 5.3%
Past 10-year NAV return 2.9%, price return 1.4%

Money is not free. Any students of Discounted Cash Flow know equity capital has a cost, commonly defined as risk free rate + equity (share) market premium.

The risk free rate can be assumed as 10Y Malaysian government bond yield. It averaged about 4% in previous decade. Equity risk premium is typically 5% to 7%. Taken together, typical stock investment in Malaysia should have a hurdle rate of about 4% + 6% = 10% per annum.

ICAP return since inception or in past 10 years was clearly below hurdle rate.

Besides, price return rather than NAV return should be used as performance yardstick. This is because investors who need to raise cash now by selling in stock market can only sell at market price, not selling NAV.

(For the same reason Star Media investor can only sell at 35 sen today, not at the net cash of 50 to60 sen, or its net tangible asset at 109 sen).

ICAP (price) return at 5.3% (past 15 years) or 1.4% (past 10 years) are clearly not acceptable.

Has the board been sleeping?

Posted by observatory > 2020-07-27 23:55 | Report Abuse

And my last comment -- on your statement that ICAP “1.5% fees is lower than open-ended fund's fees”

That is not true.

Since Lipper does not provide fee info, I looked up Malaysia equity funds listed in Fundsupermart. I checked out the top 5 funds with highest 10-year annualized return. I picked the best long-term return funds because they are in a better position to raise fee.

These is the data:
1. Eastspring Investments Small-Cap Fund: annual return 13.87%, annual mgmt fee 1.50%
2. Kenanga Growth Fund – annualized return 12.29%, fee 1.50%
3. KAF Vision Fund – annualized return 11.19%, fee 1.50%
4. Kenanga Growth Opportunities Fund – annualized return 10.87%, fee 1.55%
5. RHB Thematic Growth Fund – annualized return 9.88%, fee 1.50%

Conclusion: 4 out of 5 top equity funds charge a management fee of 1.50%, similar to ICAP 0.75% +0.75% = 1.50%.

Actually there is a little bit more than management fee. On average there is another ~15 basis points which make up the full expense ratio. But ICAP also incurs other expenses on top of its 1.5% fee.

The other expense of buying open-end unit trust is the one-time sales charges. Fundsupermart charges 0.75% to 1.75%, while banks charge about 3% after rebate. It's slightly more expensive than the two times stock brokerage fees of buying and selling ICAP, given online brokerage fee is about 0.1% to 0.42%. (However fundsupermart supports free switching)

But spreading over a holding period of 10 years or more, the cost incurred in owning open end unit trusts is comparable to owning ICAP.

On top of the better performance (albeit I picked only top funds) at 9.88% to 13.87% p.a., versus ICAP 1.4%, unit trust investors also get their full NAV when redeeming their funds. They don't suffer a 30% discount when they selling.

Posted by ahhuat56 > 2020-07-28 08:02 | Report Abuse

Just how does one control of manipulate the market so that the share price of ICAP can go up above the rising NAV ?

Posted by fong7 > 2020-07-29 06:20 | Report Abuse

ICAP's humongous NAV discount portraits how much respect market gives TTB. The conclusion: NO RESPECT! So, please TTB's fans and TTB's staffs who wrote in this forum, NEVER EVER compare TTB with the world most respectable value investor, Buffett. You guys are humiliating yourself as well as TTB by putting their names side by side, embarrassing!

Posted by ahhuat56 > 2020-07-29 08:42 | Report Abuse

Does that mean that those who have been accumulating ICAP shares, including City of London, have a lot of respect for TTB ?

Posted by vidusaka > 2020-07-29 10:45 | Report Abuse

aahhh... so it looks like you get paid by both the number of words and posts...

...and seems like your KPI also includes speed of reply... better hurry lah,... must please the london paymasters....

Posted by JohnDough > 2020-08-02 17:24 | Report Abuse

“Based on Capital Dynamics’ time-tested bamboo value investing, we have successfully managed icapital.biz Berhad through this sudden and unprecedented crisis. While many businesses and investors have suffered severe or complete losses, icapital.biz Berhad is in excellent condition.

Since the pandemic broke out, we have been gradually increasing your Fund’s investment to position it for the longer term. While the KLCI has rebounded nearly 400 points from its low in March 2020, a substantial portion of this came from just 2 glove stocks. Most importantly we need to be mindful of what we are dealing with.

As this year’s AGM approaches, shareowners should watch out for a new round of negative comments on your Fund in the social media.

Please be aware of this and not be misled. “Lies, damned lies, and statistics” is a phrase describing the persuasive power of numbers, particularly the use of statistics to bolster weak or false arguments.

In the case of icapital.biz Berhad, a listed closed end fund, it is important that shareowners should be able to distinguish a “stock” concept from a “flow” concept. Items in a profit and loss statement are flow concepts while those in a balance sheet are stock concepts.

For example, an editor of a local financial publication was sued by me for defamation, when the said person misleadingly compared an item in your Fund’s profit and loss statement with another item in the said profit and loss statement when it should have been compared with items in your Fund’s balance sheet.

If you want more information, please email me at enquiries@cdam.biz”

icapital.biz berhad 4Q20 report – commentary by fund manager

Posted by ahteck85 > 2020-08-06 15:11 | Report Abuse

@observatory

You have raised a few interesting points and I do recommend you to subscribe to icap newsletter. Some questions for you to ponder on
1) Why is TTB almost fully vested in his overseas funds but opt to hold so much cash in icap? What's wrong with the Malaysia market?
2) For the other Malaysia equity fund, what is the degree of overlap with KLCI and what is ICAP's degree of overlap with KLCI?Note that we are comparing active funds and not index fund.
3) Baupost's cash position is 31% on Jun 30 and why? - I am a deep admirer of Klarman, more than buffett


The recent sharp rise in tomei and poh kong is like a slap on the face. It shows the irrationality of retail investors and the high level of speculative interest inside Bursa. I personally do not bother about KLCI.

Posted by i3gambler > 2020-08-07 10:51 | Report Abuse

How to compare ICAP’s NAV, Price with KLCI.

On 20th Oct 2005 (from its website)
NAV = 0.99
Price = 1.03
KLCI = 911.69

On 5th August 2020
NAV = 2.86
Price = 1.99
KLCI = 1568.13

ICAP dividend:
Amount = 0.095, subject to 25% tax
Payment Date: 7th Oct 2013
ICAP Price on 11th Oct 2013 = 2.33 (from its website)

Assume reinvesting the dividend for extra units,
Also assume the investor income tax rate is zero, meaning the 25% tax will be returned
Total holding will increase by 0.095/2.33 = 4.08%,

From 20th Oct 2005 to 5th Aug 2020, that is 14.79 years.

Now we calculate the Compound Annual Growth Rate:
For NAV = (2.86*1.048/0.99)^(1/14.79)-1= 7.78%
For Price = (1.99*1.048/1.03)^(1/14.79)-1= 4.89%
For KLCI = (1568.13/911.69)^(1/14.79)-1= 3.73%

However, if we invest into KLCI’s 30 index counters, we receive dividend.
So, I think ICAP so far perform so so only.

Posted by Evelyn11 > 2020-08-08 10:21 | Report Abuse

@i3gambler.

Indeed, Mr. Tan was right about “Lies, damned lies, and statistics” in ICAP’s latest quarterly. Remember rule 72 – that is, if you are able to generate 7% compound return per annum, your capital will double every ten years.

What you conveniently failed to point out is the fact that ICAP’s NAV has grown to 2.86 times whereas the Index has grown 1.72 times. So for a person that invested RM100,000 at IPO, the difference is between RM286K versus RM172K – which is RM114K.

If this goes on for another 15 years, then the difference would be even more ridiculous. Compounding RM286K at 7.78% for 15 years will equal to RM880K. Compounding RM172K for 15 years at 3.73% will equal to RM298K. The difference has blown out to RM582K. Such is the power of compounding over long periods.

Judging by how the index right now is supported by just two glove stocks and the fact that ICAP has been deploying cash for LT investments, the odds are good that this will be the base case at the very least.

Most importantly, with ICAP’s conservative value investing philosophy, investors can sleep easy. Not many appreciate the fact that the outperformance was generated during a long period with half or more of NAV in cash.

For a conservative investor placing sizable amounts of their net wealth in the stockmarket, their mindset will change and recognise this is a good thing. In one of your posts, you asked why ICAP shareowners overwhelmingly voted to support the special resolution at ICAP's 12th AGM. If you put yourself in a mindset of a shareowner/LT investor above instead of a gambler, then you would. Knowledge can be transferred, but wisdom cannot.

Lastly, a point that many fail to appreciate is ICAP charges ZERO performance and loading fees. When you invest in mutual funds, a lot of the time, you start by being down when you enter, and you get clipped again on the way out. Then you also often get charged performance fees.

The fact of the matter is this. If I was a fund manager with a sole purpose to make money, I would not bother with a closed ended fund. I would much rather an open ended fund, where I can keep generating fees by just moving clients from one fund to another. If my performance sucked, I would just create another fund and remarket it. Oh wait. That is the business model of most mutual funds. Notice how hardly any mutual funds have the prolonged track record that ICAP does?

Do you understand why ICAP remains the only closed end fund until now? If a closed ended manager can make so much money, many other fund managers would have listed a closed ended fund too. This is basic economics 101.

I believe these arguments also lay to rest all other lame arguments above.

Posted by stockraider > 2020-08-08 11:17 | Report Abuse

The arguement Everlyn is misleading below loh...!!

Icap achieved above 20% pa return compound in the 1st 5 year of listing mah...!! In fact they hit something like 23% pa compound loh..!!
Thus outperform against KLCI.

But the latest last 5 years...Icap achived return of less than 2% pa, thus underperform against KLCI mah..!!

Should u rely on 1st 5 years of performance or do u measure base on the latest 5 years performance to judge leh ??

Raider will chose the latest 5 years bcos it is more reflective of icap loh...!!

It is simple mah...if TTB lost the zest all put monies in Fixed deposits how to perform as a fund manager leh ?
Posted by Evelyn11 > Aug 8, 2020 10:21 AM | Report Abuse

@i3gambler.

Indeed, Mr. Tan was right about “Lies, damned lies, and statistics” in ICAP’s latest quarterly. Remember rule 72 – that is, if you are able to generate 7% compound return per annum, your capital will double every ten years.

What you conveniently failed to point out is the fact that ICAP’s NAV has grown to 2.86 times whereas the Index has grown 1.72 times. So for a person that invested RM100,000 at IPO, the difference is between RM286K versus RM172K – which is RM114K.

If this goes on for another 15 years, then the difference would be even more ridiculous. Compounding RM286K at 7.78% for 15 years will equal to RM880K. Compounding RM172K for 15 years at 3.73% will equal to RM298K. The difference has blown out to RM582K. Such is the power of compounding over long periods.

Judging by how the index right now is supported by just two glove stocks and the fact that ICAP has been deploying cash for LT investments, the odds are good that this will be the base case at the very least.

Most importantly, with ICAP’s conservative value investing philosophy, investors can sleep easy. Not many appreciate the fact that the outperformance was generated during a long period with half or more of NAV in cash.

For a conservative investor placing sizable amounts of their net wealth in the stockmarket, their mindset will change and recognise this is a good thing. In one of your posts, you asked why ICAP shareowners overwhelmingly voted to support the special resolution at ICAP's 12th AGM. If you put yourself in a mindset of a shareowner/LT investor above instead of a gambler, then you would. Knowledge can be transferred, but wisdom cannot.

Lastly, a point that many fail to appreciate is ICAP charges ZERO performance and loading fees. When you invest in mutual funds, a lot of the time, you start by being down when you enter, and you get clipped again on the way out. Then you also often get charged performance fees.

The fact of the matter is this. If I was a fund manager with a sole purpose to make money, I would not bother with a closed ended fund. I would much rather an open ended fund, where I can keep generating fees by just moving clients from one fund to another. If my performance sucked, I would just create another fund and remarket it. Oh wait. That is the business model of most mutual funds. Notice how hardly any mutual funds have the prolonged track record that ICAP does?

Do you understand why ICAP remains the only closed end fund until now? If a closed ended manager can make so much money, many other fund managers would have listed a closed ended fund too. This is basic economics 101.

I believe these arguments also lay to rest all other lame arguments above.

Posted by i3gambler > 2020-08-08 11:30 | Report Abuse

Dear Evelyn11,

Come on, did I attack ICAP when I said ICAP perform so so only?

NAV's CAGR was so far 7.78%,
Price's CAGR was so far 4.89%,

Do you know that KLCI's Dividend Yield is around 4% now?
I have no accurate record of KLCI's DY for the previous years,
But I think most of the time the DY should be between 3 to 4%

Therefore, the total CAGR for investing in KLCI's index counters is about 3.73+3.50 = 7.23%,
The difference between 7.78% and 7.23% is just only 0.55%,
Is it very wrong to say "perform so so"?

When I saw ICAP was trading at big discount to its NAV,
I bought it hoping for its liquidation in year 2020,
When I realized that it was not going to happen soon,
I sold them all on 28th May at RM2.07, just enough for break even.

You all can say ICAP is for long term investment, no problem.
If one day, the discount is growing even bigger,
I may buy it again for speculation.

Posted by stockraider > 2020-08-08 11:42 | Report Abuse

Correctloh...!!

This TTB macai Everlyn..trying to paint a misleading picture of Icap, it is obvious gruesome loh...!!

Posted by i3gambler > Aug 8, 2020 11:30 AM | Report Abuse

Dear Evelyn11,

Come on, did I attack ICAP when I said ICAP perform so so only?

NAV's CAGR was so far 7.78%,
Price's CAGR was so far 4.89%,

Do you know that KLCI's Dividend Yield is around 4% now?
I have no accurate record of KLCI's DY for the previous years,
But I think most of the time the DY should be between 3 to 4%

Therefore, the total CAGR for investing in KLCI's index counters is about 3.73+3.50 = 7.23%,
The difference between 7.78% and 7.23% is just only 0.55%,
Is it very wrong to say "perform so so"?

When I saw ICAP was trading at big discount to its NAV,
I bought it hoping for its liquidation in year 2020,
When I realized that it was not going to happen soon,
I sold them all on 28th May at RM2.07, just enough for break even.

You all can say ICAP is for long term investment, no problem.
If one day, the discount is growing even bigger,
I may buy it again for speculation.

Posted by JohnDough > 2020-08-09 14:06 | Report Abuse

“In good times, far too many people can be overheard saying, “Riskier investments provide higher returns. If you want to make more money, the answer is to take more risk.”

But riskier investments absolutely cannot be counted on to deliver higher returns. Why not? It’s simple: if riskier investments reliably produced higher returns, they wouldn’t be riskier!

No, I’m sure “risk” is – first and foremost – the likelihood of losing money.

The intelligent acceptance of recognized risk for profit underlies some of the wisest, most profitable investments. When you boil it down, it’s the investor’s job to intelligently bear risk for profit.

That’s it: the intelligent bearing of risk for profit, the best test for which is a record of repeated success over a long period of time.”


Oaktree Capital January 2006 Memo – by Howard Marks