Friday, July 13, 2012

Why I bought ICap

When I first started this new portfolio which I am going to call "Intellect Point Portfolio", I did say that it is going to be a small and long term portfolio for kids education. Started off with RM32,500, now it's NAV has exceeded RM60,000 after 1-1/2 year. The original intention is for this fund to continuously beat the market, that's it. Honestly, I do not expect it to perform so well, as I was going to take a very long term view of this fund. I have more than 15 years to go with this fund and most probably (hopefully) I am not going to touch it. This is not a retirement fund though.

With the sale of AEON few days ago, I have decided to buy 3,500 units of ICap at RM2.17 today.
 
Why do I buy ICap

Frankly, this is a much more careful purchase. Why?
(Hey, if I am wrong in this call, I can safely say Tan Theng Boo also wrong, mah! :) Hence the pressure off myself )

Besides that, first of all, it is undervalued. Yes, it is much easier (against any other businesses) to determine whether the closed-end fund is undervalued by virtue of its traded price against NAV. As at yesterday, ICap's NAV was RM2.95 while its traded price today which I have bought at is RM2.17, a whopping 26% discount from its NAV.

Secondly, the fund is sitting with cash. As at 29 Feb 2012, RM134 million is held in cash. This cash it is sitting on is higher than the RM115 million cash it was holding as at 31 May 2011, its last year-end closing. This shows that ICap has been a net seller of stocks (on top of the cash dividends they get). They are hence sitting on 1/3 with cash while the other 2/3 is invested. With the amount of cash they are sitting on, it shows that they probably are more careful than me. You see, the beauty of closed-end fund is that they are not susceptible to investors pulling out, hence the cash holding only shows that they are taking a little pessimistic view of things thinking that shares will drop in future - that's where they will buy.

With RM134 million in cash, this means that literally they are having RM0.957 in cash out of the traded price of RM2.17. Then, why is it that ICap is trading at such a discount? You can see that some shareholders are probably not patient. In shares investing, patience is a virtue. ICap has in fact been trading further apart from its NAV.

I can only speculate that since Icap has never issued any dividends, some investors just got tired of holding it for long term and sold. Most of them of course probably sold at a slight profit I believe, as RM2.17 to RM2.25 is probably the upper end of its historical traded price over the last 3 - 4 years. These investors just got tired and been selling.

What has changed since my last article.

If you have read it, over the last few months, ICap has just gotten a seal of approval from 2 decent-sized funds. See below. Both the funds - City of London Investment Management Company and Laxey Partners Limited are now holding more than 6% each of ICap - hence making it for first time ever ICap has a substantial shareholder (means more than 5% holdings).

This seal of approval is important as it shows that some decent sized funds are giving a seal of consent on trusting the managers of ICap to act on behalf of them. (Do Google these 2 funds to see whether these are very small or somewhat trusted funds)

I sincerely do not expect this fund to have a run as it is holding a substantial percentage in cash (except for the readjustment to its NAV). Hence from this is a very long term view as I do not expect dividend either.

What is my status on the "Intellect Point Portfolio" then.


No more cash, huh!


This is my personal view and is not representing an advice to the readers to buy or sell.

9 comments:

Anonymous said...

Thx for ur willingness to share. Thumb up.

hc said...

U r really a good person who is not selfish. May in 15 years time ur fund is enough to buy a property at oversea where ur kids don't have to rent when they study abroad :)

Felicity Cheah said...

Thx, but surely I am not hoping for a property overseas with this kind of investment size :)

We do not know what will happen to cost of education as well by then.

Cheers

Sunny said...

If you can keep 20% growth rate, then after 20 years this 60k will grow to become 2.3 mil, assuming no more additional investment capital from now. Better ask your son to study stock than in the university, unless he is really interested in particular subject like the ants love the honey. This is better than any degree. With a mum like that, he doesn't need a lecturer.

Sunny said...

I also manage a close end fund. For my mum only. That is better than close end fund, because she gets all the dividend payout of the shares held under her fund.

The only thing interesting to me in ICAP is its price at a discount to the NAV. Like a big orange that I can't squeeze. That makes me recall the story of The Fox and The Grapes...

Once upon a time there was a fox strolling through the woods.
He came upon a grape orchard. There he found a bunch of
beautiful grapes hanging from a high branch.

"Boy those sure would be tasty," he thought to himself.
He backed up and took a running start, and jumped.
He did not get high enough.

He went back to his starting spot and tried again.
He almost got high enough this time, but not quite.

He tried and tried, again and again, but just couldn't get high
enough to grab the grapes.

Finally, he gave up.

As he walked away, he put his nose in the air and said:
"I am sure those grapes are sour."

http://www.bedtime.com/html/fox_and_grapes.html

Benson said...

Hi Felicity, unlike unit trust, this fund wont charge us any fee for long term right? Thx a lot ya~

felicity said...

They do. Check the annual report but the fees are a lot on success.

Benson said...

Thx ya, unit trust charges is rather high at 5.5% and annual fees somemore, this fund is a better bet for long term. Will start buying below 2.2.

Capital Dynamics said...

To share owners, as of 2 November 2012, 5 new nominees for directorship for the Board of icapital.biz Berhad have been put forth for election during the AGM.

Dato’ Tan Ang Meng and Dr. Yin Thing Phee @ Yin Thing Phi are nominated by the current Board.The Board's nomination has all share owner's interest in mind and is to ensure continued long-term success.

The other persons, Andrew Pegge, Lo Kok Kee and Low Nyap Heng, were nominated by a member who holds 50,000 shares. Andrew Pegge is the CEO of Laxey Partners Ltd.

Since the right composition of the Board of Directors and the ability of the Board to work together with the Fund Manager are crucial for the continued success of your Fund, we strongly encourage all share owners to attend the AGM and ensure that your long-term interests are safeguarded.

More details are available on http://www.bursamalaysia.com/market/listed-companies/company-announcements/1108845 and www.icapital.my