Don't disagree with your general synopsis, but Í believe the 8% dividend is a bit misleading - Where the income earned by the company is less than 8%, then the dividend in my view is a partial repayment of capital
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Agreed. Analysis of the PIE income statements will make that fairly obvious...' excluded income '...
Just be cautious that you're not paying for your future dividends up front...
You need to be careful what you pay to build these portfolios and when to buy in...
I agree with your post and the subsequent one immediately above BUT some people will look at the 14% net return average over the last 3 years and accept that while there will be some variability around returns in the future, on average they have reasonable grounds to expect that such a situation will be temporary and therefore of no consequence to them.
That said I would not pay 85 cents for the shares with warrants on issue (future NTA dilution expected exercise price 64 cents) and the ~ 10 cent premium to NTA....but I can understand why someone who is say 80 and needs to supplement their income in the years ahead might. Will they get a better opportunity in the future to buy at a lower premium to NTA, highly likely !
On the other hand if they wait they won't get a nice big juicy dividend this Christmas to buy their grandkids presents... I guess it all depends upon people's need for income and with elderly folks being offered less than 1% on term deposit before tax and inflation some are probably asking what better alternative is there ? I don't have any other theory on why the share price is at such a premium to NTA.
It comes down to hunt for yield..folks getting desperate for yield. It might look good at first glance but not all yields are equal. The yield has to come from somewhere.
I think that's a huge part of this but another aspect people may be thinking about is the managers astonishing ability to consistently outperform the market.
There was certainly a very happy and contented atmosphere at the annual meeting as people enjoyed a nice lunch reflecting on the astonishing 19% market outperformance last year. Possibly worth noting that the premium to NTA has grown considerably since the annual meeting.
What sized premium to NTA, (if any) will prove to be durable into 2021 ? What do you folks think ? Some food for thought, an old article but nonetheless perhaps a starting point for consideration. https://monevator.com/why-do-investm...-or-a-premium/
He concludes with I wouldn't quibble over paying a 1-2 % premium to NTA for a good listed fund. I wouldn't either but maybe a little bit higher premium given their remarkably consistent and high outperformance is warranted ? (Same question applies to Marlin and to a lesser extent Kingfish). What premium if any is warranted ?
I'm not sure how to answer that question for myself. I would probably pay 3% for BRM or MLN for their overseas expertise and the diversification and yield that brings to my portfolio but I wouldn't pay the current ~ 13%. Regarding Kingfish I'm happy to back myself to outperform the NZX consistently more than the average KFL has done in the last 3 years (2.5% per annum) so I would be reluctant to pay any premium for KFL units, (but its worth noting that others are).
I'll just throw this out there as a possibility. Maybe a premium to NTA as a percentage is justified based on the average long run outperformance of a fund after managers fees, performance fees and operating costs relative to the index ? Since these three investment teams have been appointed for just over 3 years we have to use the 3 year figure (as opposed to the 5 year average which incorporates a lot of time with the previous fund managers)
Looking at the last 3 years on average the funds have outperformed the index after all costs on an NTA to NTA basis as follows
BRM 8.9%
MLN 9.7%
KFL 2.5%
Maybe premiums to NTA at these respective levels for these funds is warranted ?
As a long term holder of KFL and having first hand experience of at least last 3 warrants issues ...I must say I am most surprised at what's happening at the moment Agree people maybe looking for safe and convenient , regular dividends etc etc but paying 12% over the last reported NAV is not a sensible thing to do . Similarly buying MLN in the market for 1.20 where as One could have got it at 1.08 via warrants on offer at 22 cents plus 86 cents exercise price is just too much over exuberance . Paying so much premium for convenience ...not seen before . Also shows the lack of depth and real understanding of stock markets ...so much arbitrage on offer ...in efficient markets wont happen !!
Just last year in July when KFL exercised its last warrants @ 1.25 ...market price of KFL was around 1.43 ...NAV around 1.65 ...warrant around 15 cents ...took KFL 4 months to close the NAV to market price gap .
Will wait to see what happens when recently minted MLN coming to market coming Wednesday bought at maximum 1.08 ...if still people ready to buy MLN at 1.20 then hunt for yield will become the most obvious reason for this new phenomenon seen for the first time in Fisher Fund managed listed PIEs
IMHO there are other options like ETF of smart shares like NZG with just 0.2% fund charges offering regular dividends without having to resort to excluded income return of own capital as dividends .
For healthy markets we all need to better understand its ways ...knowing its pitfalls ...whether created or occurring naturally due to in efficiencies in the system
A burnt investor never returns to market for a long time . Hopefully people know what they doing ...
Rising tide raises everything so easy to get away with silly mistakes in Bull markets ...but still mistake is a mistake especially if u make it due to lack of knowledge or not doing proper homework ...lol
Some good analysis in the last two posts. Actually I think the current market price is driven by newer entrants..the 'sharesies' buyers?. It may even be a case of forward loading the buy price to see how high it would need to rise to reduce the yield to a bank equivalent.?..not a good idea.
As a holder of all 3 listed Fisher funds since day one there is no way I'd be buying at these premiums.
As that irritating young lady who fronts a consumer loans shop on tele reminds us .."there are times to borrow and times to save...you know" (she clearly doesn't).
So there are times to buy shares and time to sell shares.
Thanks for your thoughts and I remember the KFL warrant exercise arbitrage very well.
To my mind (at least and I accept others will have a different view) the BRM and MLN situations are different to KFL.
KFL's outperformance on average of 2.5% per annum is not especially notable or material and I would back myself to do better than that, (and have consistently done so over the years), so the benefits KFL brings to me include :-
1. Diversification of my N.Z. portfolio
2.Tax free yield.
3. Regular warrant issues which I back myself to value and take advantage of opportunities to acquire on advantageous terms when they occur.
4. Shares in lieu of dividend at a 3% discount which further boost my effective yield.
5. Expert fund manager that is beating the market after fees and costs.
On the other hand BRM and MLN's average outperformance is far more notable.
Benefits to me are far greater and include :-
1.Much greater diversification to my portfolio, both funds have a much wider spread of shares than KFL
2. Both are investing in markets that I don't invest in directly and don't have the time for the research involved
3. Substantially higher outperformance compared to their benchmark's than KFL
4. They take care of all the FIF tax hassles which would be very time consuming for me if I was to try and handle overseas investments myself
5. Tax Free PIE yield.
6. Regular warrant issues which I back myself to value and take advantage of opportunities to acquire on advantageous terms when they occur.
7. Shares in lieu of dividend at a 3% discount which further boost my effective yield.
To me the benefits of BRM and MLN are clearly greater than with KFL. Would I pay the current unprecedented premium to NTA with MLN and BRM ? No.
Would I pay some more modest premium reflecting the advantages to me of these funds in these unprecedented times of extraordinarily low interest rates ? Yes.
What is the size of the premium to NTA I would pay ? I don't know, I am trying to work that out.
Appreciate your judgement and seasoned opinion that U wont be a buyer at these levels ...fully agree ...
Warren Buffett says ...buy when all selling and sell when all buying ...soon markets will find its true bearing .
But markets can be illogical far longer then we can be solvent ...another popular saying ...lol
Cant be out of market in these times when every central bank is trying to print its way out of trouble ...
So challenging times for not only the one looking to invest but also for the one already invested and seeing crazy and tempting prices ...hehe
Really irritating, perhaps that was the idea. (Sometimes really irritating marketing is the most effective)
Thanks for your post which is the kind of feedback I was looking for.
You'll remember when these were trading at a deep discount to NTA, (If I remember correctly it was as much as 20% at one point many years ago).
Three questions for you.
1. Given clear outperformance of the investment teams appointed, (from memory about 3.5 years ago) is so different to the performance before that under the previous teams is some premium to NTA warranted now and would you pay any premium and if so how much ? Would your answer be different if you had a very large term deposit come up for maturity and were offered 0.9% per annum to reinvest it ? (This situation, as I am sure you can appreciate, is exactly what's occurring for many investors)
2. They have a capital management strategy as you know that buys shares back when they are over a 8% discount to NTA so do you think as a further capital management policy they need a new strategy that sells shares when they are at more than an 8% premium to NTA ?
(A new policy like this would enhance overall returns for remaining shareholders).
Understand your requirements better now ...U know very well what works for u and why ...like the clarity of your thought process .
KFL portfolio is very easy to replicate too . But not of MLN ...
Normally I see such inefficiencies and large arbitrage possibilities during the last stages of a Bull market ...that part worries me
Though state of financial markets and stances of Central Bank and Governments is telling me ...Nothing to worry for 2-3 years at least ...but U never know
I know this post is not directed towards me but still I thought I should share my thoughts about your proposals
Just like Smart shares ETF which has Vanguard as their market makers ...means they provide both sell and buy side quotes on NZX based around daily NAV of the fund . If Fisher managed listed PIEs can do something similar then it will become more market friendly and efficient . No need to issue warrants then to increase corpus as if they do well then people can continuously buy them from them only on the NZX ...so from close ended funds they become open ended but only at NZX like Smartshares .
That will be my suggestion to them !
Yes our posts are crossing. Good inputs tho. Regarding the issue if valuing the nta vs market premium or discount Fisher also operates unlisted unit funds that are identical to the listed funds so that offers more transparency at the cost of opportunity..when it arises.
Regarding capital management strategy..don't assume the manager wouldn't sell its own shares and buy them back where profit can be made?. Being a closed end fund the money has to be made somehow.
Maybe the manger should sell shares when they're at an 8% premium or more ?
I assume they already do ;)
Thats what I dont like ...non transparent practices ...they will be better off having very transparent and market friendly policies so that all types of investor's interest is safeguarded ...That way Smartshares ETF s have superb practices . They provide liquidity on NZX in all kinds of situations unlike Fisher Funds whose buyers run away in troubled time like in march ...it had a free fall from 175 to 105 in 15 days with hardly any volumes . Agreed all went down but they had volumes to let someone exit if they wanted ...
Yes I know they have a very similar ...not exactly same ( It has Serko and Xero in it too ) open fund called NZ Growth Fund at Fisher Funds ..but it has 14 days turn around transactional time frame...
Providing liquidity on NZX based on last days NAV will go a big way in making them outstanding funds for the masses .
I said I assume. Any active fund manager buys when prices are cheap and sells when they overshoot to the point of silliness. That applies to portfolio stocks and most likely the master stock as well...infact I would expect them too in my interests as a part owner of the business. Not the managers fault if the market throws up opportunities either way. March was good buying..I ran toward the fire not away. As I said earlier...work out when yo accumulate and when yo sell. That's what taking a punt on the markets is about.
And something more I need to add here. Don't confuse NAV of the underlying assets with the daily BRM/ KFL/ MLN market price. The fund mangers issue NAV data each week on a Thursday and also EOM as at 31st. What buyers and sellers trade the headline shares at is beyond the fund managers control.
Like many holders of these shares I appreciate times when the headline shares are both under and over NAV.
If you only wish to buy in and sell out at NAV then these listed funds aren't the correct vehicle...the unit funds would be.
Have a look at Smartshares model of trading via market maker on NZX based on daily and current NAV of the ETF like TNZ / NZG/ FNZ ...then u will understand better what I am advising Fisher Funds to do with their listed PIEs .
Their portfolio management and picks is good but their investor care is not up to scratch as they are not trying to look after all kinds of investors ...keep in mind not all investors are smart and market savvy ...they need to be protected from pitfalls of stock markets ...
In my view for Fisher Funds this listed PIE business is too small as they have much larger corpus in other funds not listed ...so they not trying to be investor friendly .
Where as Smartshares being a NZX promoted company has partnership with Vanguard ...the worlds largest ETF operators and with that they bring world class knowledge and experience including investor care .
As they only follow indexes so no portfolio choosing or picking part they do but still Fisher can learn their investor care to give best of both worlds at same place .
Here will like to highlight that in longer term say over 7 years ...KFL / BRM / MLN have not outperformed headline indexes by too big a margin ...maybe due to compounding effect of big difference in management fees .
The most efficient stock market investment for lay or even market savvy investors is NZG which has exactly same composition as our headline index without any caps of maximum 5% like FNZ ...it follows our index fully ...if market up 2% NZG is up 2% . It has fund charges of only 0.2 % compared to KFL 1.5 % plus performance fees of 1.25% almost every alternate year .
On 7 years term KFL returns almost matched index returns to an investor after all charges and tax . They are also PIEs so tax efficient
Though I like the portfolio expertise of Fisher funds but want them to be more investor caring by trying to remove market or man induced aberrations in their prices . Which can be easily done if they choose to follow Smartshares model of having a continuous market maker on NZX .
Who cares if there are investors not smart and savvy. I like the way the funds are run now. If you don't then go find some that are different. Don't try and fix something that is not broken.