The UIS Story - Closed-End Fund vs Open-End Fund

The EGM held by UIS yesterday had set me thinking about Closed-End Fund vs Open-End Fund. I mean, most investors are familar with open-end funds as there are many out there like most unit trusts. Basically the difference between the two is that closed-ended funds are not available for creation/cancellation of units/shares after IPO. Effectively, the fund is "closed" after listing and shareholders will have to sell their shares in the market after listing if they wish to liquidate their holdings. They cannot go to the fund manager and redeem their units. Similarly, the fund manager of a closed-ended fund is not likely to issue new units for subscription for interested unit holders after IPO.

So what is the advantage of a closed-ended fund like UIS over open-ended fund ones like most unit trusts/ETFs?

1. Fund manager do not have to worry about subscription and redemption of units/shares. This basically saves them the headache of managing fund inflows and outflows due to investors' actions. They can avoid selling assets during market downturn in order to meet redemptions from panic sellers. They can also avoid huge cash inflows during market bull runs and having being "forced" to invest in a heated market or hold too much cash due to no investment ideas.

2. Fund manager will have to increase the asset in the fund via his stock picking and investment skills and not via attracting new investors into the fund. The skill of the fund manager thus become an important factor in growing the fund, rather than by cash inflow from new investors.

Of course, the main problem of closed-end fund is that it seldom trade near its NAV. It usually trades at a premium or discount from its NAV, and in UIS case a discount of around 15% to 25% most of the time. Another problem is its liquidity might be an issue for someone who wants to buy/sell quite a substantial amount of its shares.

All in, it is hard to say which structure is better. If I am looking for a fund to invest, I will have to see its cost structure and how much value the fund manager is giving me. Buying something at a discount from NAV might be a good deal for me and not a good one for the seller. However, if the fund manager is a good one, its NAV and share price should increase progressively throughout the years even if the share price is consistently trading at a discount.

As to how to narrow the discount to NAV for UIS, various suggestions had been tabled but in my own view, none is better than seeing an increasing NAV plus decent dividend payout throughout the holding period for a long term investor like me.

My Investment Portfolio (December 2009)

This is my last portfolio review of the year. As tomorrow is a half-day trading, I shall do my review one day earlier. This month, the market generally moved up and there had been a few changes in my top 30 holdings.

TIH (i.e. Transpac Industrial Holdings) is in my top 30 list for the first time due to the fact that I exercised their warrants early before expiry and converted them to shares, in order to be entitled to the interim dividend that had been declared. SP AusNet is also back in the list as I continued to participate in their scrip dividend scheme. I have also participated in the following rights issues this month - AIMS-AMP Capital Industrial Reit (formerly known as MI-REIT), Pteris Global and OKP.

As the market had ran up quite a lot, I have added onto my existing defensive counters with the proceeds from TIH interim dividend to reduce my portfolio risk. These are mostly mid cap value stocks purchased from the unit share and board lot markets. Names that I had added this month include K1 Ventures Limited, Noel Gifts, IFS Capital, UIS, UOI, Great Eastern Holdings and Singapore Land.

I have continued participating in Olam's scrip dividend scheme and converted my St James company warrants to shares before expiry. I have also accepted the delisting offer for my Iconic Holdings shares.

Next month, there will be a few rights issues to look out for but mainly small ones. Therefore, my strategy will still be defensive and invest prudently into the market with my spare cash.

My S'pore Stock Portfolio - Top Holdings, cash investment only (correct as at 30 December 2009)

Top 30 Holdings (Sing$ Denominated shares)
1. Noble Group
2. SGX
3. A-REIT
4. Jardine C&C
5. Hersing
6. CapitaMall Trust
7. F&N
8. SembCorp Marine
9. Bukit Sembawang Estates
10. Raffles Education Corp
11. KepLand
12. Parkway Holdings
13. CapitaLand
14. K-REIT Asia
15. ComfortDelgro
16. CitySpring Infrastructure Trust
17. Hong Leong Finance
18. Wheelock Properties
19. CapitaCommercial Trust
20. OCBC Bank
21. Transpac Industrial Holdings
22. Ascendas India Trust
23. CDL H-Trust
24. Pacific Andes
25. Cosco Corp
26. Rotary Engineering
27. Ho Bee Investment
28. Mermaid Maritime
29. WBL Corp
30. SP AusNet

Top 5 Holdings (US$ Denominated shares)
1. Jardine Strategic
2. Dairy Farm
3. Hong Kong Land
4. Jardine Matheson
5. Mandarin Oriental

Top Holdings (HK$ Denominated shares)
1. Fortune REIT
2. Tan Chong International

Top Holding (Aust$ Denominated shares)
1. AV Jennings
2. AustLand PG

Top 5 Holdings (CPF OA investment)
1. Keppel Corp
2. Streettracks STI ETF
3. CapitaMall Trust
4. A-REIT
5. SingTel

My Hong Kong Stock Portfolio (listed on SEHK)
1. Peace Mark Holdings

My Unlisted Company Portfolio
1. Automated Touchstone Machines Ltd
2. Iconic Global Limited
3. Greatronic Limited

My Unit Trust Portfolio:
http://www.fundsupermart.com/main/community/Portfolio_View.svdo?id=P199

Furama Ltd and Jurong Cement Ltd - Value Investing Examples

The recent two voluntary unconditional cash offers for two low profile companies in my portfolio - namely Furama Ltd and Jurong Cement Ltd sets me thinking for a while. Both offers quite a huge premium over their last traded price - i.e. 36.99% for Furama Ltd and 64.1% for Jurong Cement Ltd respectively.

What does this mean? It means that there are still undervalued stocks in the market to be picked. The key is to spot them before controlling shareholders decided to take them private. Which industry to look at then? Well, Furama Ltd is in the hotel industry while Jurong Cement Ltd deals with cement and ready mixed concrete. What stocks to look at? Both Furama Ltd and Jurong Cement Ltd are neither big or mid cap stocks. They are thinly traded and both have low liquidity. Both are loss making year to date. Both did not paid any dividends this year. Both are not covered by any stock analyst out there.

Well, the above are certainly not reasons to pick a stock in any books out there that you read. I mean, buying a stock that is loss making and pay no dividends this year? Buying a stock with low liquidity? But both exihibits characteristics that you might wish to consider - trading below NAV before the offer was made.

The above shows that buying these stocks paid off, provided one is willing to hold them for long term. Value will eventually be found when time is ripe. In both cases, value had been rewarded when controlling shareholders said that enough is enough and decided to call it a day.

If you ask me, both companies are good case studies for value investing at our very our own SGX. One can pick up their annual reports and have a read. Better learning experience than any other investment books out there.

How to Start Investing?

Dear readers,

I received a few PMs lately on how to start investing and I thought it might be good to share some of my views with all of you out there.

Frankly speaking, I have not commented much on Technical Analysis (TA) strategies since I am a Fundamental Analysis (FA) investor. So, I shall answer this question with a FA perspective.

I started with unit trust investing and therefore I encourage beginners with no prior experience in investment to start with unit trusts. It is not that unit trusts are superior investment product than others out there. It is just that it is quite simple product to understand and more easy for a novice to start building his/her portfolio. One can also start a simple regular saving plan (RSP) with unit trusts by contributing small amount of money every month and buying into his portfolio of funds. It is a disciplined way of staying invested throughout market cycles, without worrying about daily market movements and taking advantage of dollar cost averaging.

As one gets more experienced in investing, he might wish to venture out and beyond unit trusts to ETFs, stocks, bonds etc. Stock investment is not so easy as one would need a bit of business sense, accounting knowledge and ability to interpret numbers. It would need some homework in reading and understanding annual reports, looking at industry prospects, value companies and risk management when building a portfolio of stocks.

All said, the investment journey is not an easy one. There will be ups and downs. Not everyday will be a sunny day. But if one come prepared with a plan in mind to win wars rather than small battles, one will be successful in his/her investment in the long run. Trust me, I have my fair share of misses in investment but as long as I learn something from my mistakes and try not to repeat it the next time, I think I have benefited from it.

Investment is not only about return. Try to focus on the process instead. With the right attitude, right implementation and right execution, the return will come automatically.

Wishing all of you readers out there all the best in your investment journey!

Company Warrants Expiring in 2009 - Actions Needed

I need to remind myself all the outstanding company warrants that are expiring in 2009 in my portfolio which I will need to take action. I will update this list accordingly as I go along so that I won't forget about them.

ELITE KSBW090109, Expiry Date: 9 Jan 2009, Exercise price = $0.05, Conversion ratio 1:1 - Warrants exercised and converted to shares.
S'PURA F W090301, Expiry Date: 1 Mar 2009, Exercise price = $1, Conversion ratio 1:1 - Warrants exercised and converted to shares.
FRTLINKS W090303, Expiry Date: 3 Mar 2009, Exercise price = $0.05, Conversion ratio 1:1 - Warrants expired worthless.
TEE W090409, Expiry Date: 11 Apr 2009, Exercise price = $0.13, Conversion ratio 1:1 - Warrants exercised and converted to shares.
LEEDEN W090417, Expiry Date: 17 Apr 2009, Exercise price = $0.25, Conversion ratio 1:1 - Warrants exercised and converted to shares.
HOE LEONGW090530, Expiry Date: 30 May 2009,Exercise price = $0.16, Conversion ratio 1:1 - Warrants expired worthless.
DAYEN W090703, Expiry Date: 3 July 2009,Exercise price = $0.18, Conversion ratio 1:1 - Warrants expired worthless.
GOODPACK W090716, Expiry Date: 16 July 2009, Exercise price = $1.38, Conversion ratio 1:1 - Warrants expired worthless.
ENGKONG W091113, Expiry Date: 13 Nov 2009, Exercise price = $0.05, Conversion ratio 1:1 - Warrants exercised and converted to shares.
SHANGTUR W091120, Expiry Date: 20 Nov 2009, Exercise price = $0.32, Conversion ratio 1:1 - Warrants expired worthless.
ST JAMES W091224, Expiry Date: 24 Dec 2009, Exercise price = $0.075, Conversion ratio 1:1 - Warrants exercised and converted to shares.