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Robusta fundamental, leveraged investments

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robusta said:
I am also looking for a long term passive income, as the dividends rise so should the capital growth.
Click to expand...
I agree; but I came to the conclusion that I cannot retire without a reliable income stream (and unless you are trading proficiently) capital growth will not always be inevitable across risk assets. Capital growth is a bonus, I do not use it to justify my investment. For me personally, this makes it easier to "switch off" short-term market movements. Of course I was slightly peeved that NVT fell 30 cents below my purchase price not fifteen minutes after my order was fulfilled, but I hope to never have to sell it in the long-term, unless the company loses their competitive advantages and profitably for a prolonged period. I want to be in a position where I do not have to draw down my capital to live. Dividends ensure that you still maintain control of the same amount of assets.
 
NEW INVESTMENT

MEF - Merricks Capital Special Opportunity Fund Limited

Bought 2976 x MEF @ $0.63 = $1874.88

MEF is the old Fat Prophets LIC (FAT) with a big change of direction.

"Merricks Capital Special Opportunity Fund Limited (Fund) is listed and trades on the Australian Stock Exchange (MEF-ASX). The current market capitalisation of the Listed Fund is approximately $30m.
The Fund was renamed as the Merricks Capital Special Opportunity Fund at the AGM on 15 November 2010.
On 1 August 2010, Merricks Capital commenced acting as the Manager of the Fund. On 1 October 2010, Merricks Capital and Independent Directors of the Fund announced the new investment mandate of the Fund.
The Fund focuses on having between 3 to 10 investments at any given time.
Generally the Fund focuses on making investments with small to mid-cap Australian listed companies.
The types of investments that the Fund targets are:
Obtaining a strategic stake in a desired small to medium sized listed company via placement of new securities or acquisition of securities.
Construction of unlisted convertible securities offering equity-type returns but with debt security characteristics.
Combining with other investors to acquire significant stakes in companies with a view to actively agitating for change, which could release hidden value to all shareholders.
Investments that reward the provision of liquidity.
The Fund seeks to make investments that will allow the Fund to pay regular and consistent dividends.
The Fund is able to target sectors of the market where there is a shortage of competitors.
The Fund also has the ability to co-invest in opportunities with Merricks Capital’s other funds."

MEF had a NTA backing in Jan @ $1.01 / share. The portfolio is very concentrated as of Janruary announcement.

50.93% ASX listed SRQ - Straits Resources, a copper, and gold producer and explorer with some decent assets - DYOR but well worth a look.

29.9 % digital harbour mezzanine loan, a loan to developer of a property leased by Melbourne Water (should underpin a $0.04 a share dividend for the 2012 financial year.

12.99% ASX listed IEF - ING Real Estate Entertainment Funds, looking for a good yield here

3.96% ACL - Alchamea

1.92% MPO - Molopo Energy

With a MER ~ 2.5% and liking most of the assets in the portfolio and a decent 37% discount to NTA I thought this neglected stock deserved a home in my portfolio.
 
Robusta - Just to be clear, I ask the following because I value your opinion, not because I'm trying to be critical:

As far as I understand, MEF are an investment fund, specifically in the small to mid cap stocks (that's what I gather from their site). They simply use the equity of shareholders, and possibly some debt, to invest in equities.
Based on this, I ask:
- How accurate is their 'book-value', given their assets are made up of the share prices of other companies (i.e. very unreliable book value)? Unless of course they value this differently...
- And the main question - What makes you believe that they would invest funds better than you can?

This is me asking this from the very little understanding I have on investing in an investment fund. If you have additional insight into it, please do tell.

Also worth noting that I have stayed away from all finance companies thus far, as I don't understand them.
 

The book value is equal to the market value of the holdings but if you think the portfoilo is made up of fair valued or even better undervalued shares buying at a discount to book value should be OK.

Klogg said:
- And the main question - What makes you believe that they would invest funds better than you can?
Click to expand...

Could they do worse??

The main reason I like these guys is their strategy on investing in 'special situations' a area I am interested in but have very limited knowledge on.


Listed Investment Comapanies have a lot of different risk profiles but IMO buying a select few with a decent investment strategy and a nice discount to NTA is a small price to pay for paying a few % management expense ratio and a loss of control of investment decisions.
 

I reckon there is room in every well rounded portfolio for a LIC or 2
 

The small MER% (which btw 2.5% is not small as a MER) adds up and compounds over time. My rule of thumb is to take 8-10x MER as the discount. So a MER-adjusted NTA is 75-80% of the reported NTA. The rest of the discount probably pays for loss of control, lack of liquidity in MEF and discount involved with exiting a position (i.e. hard to sell a lot of stock all at the last price).

LICs do have a place if you want some diversification and if you back people with track records that beat the market year after year (net of fees). Not so sure how many LICs actually tick those boxes.
 
Awesome - thanks all.

And sorry for the thread hijack... Now back to Robusta's investments, lol.
 
Great comments from all regarding LIC. In my pursuit of lazy but profitable investing(mainly because my individual stock pickings are dreadful), would I be far off saying that if I followed a investing strategy of purchasing LIC's at substantial discount to NTA and then sold them when they are at just close to NTA I would probably do reasonably well - especially in the volatile markets. I suppose I could hold half a dozen LIC's or so in the portfolio.

The asx prints out the discount to NTA of the LIC every month. I am pretty sure after every a few months an investor will know which to follow closely.

Thoughts?

Cheers

Oddson
 
What would be the catalyst for the discount in NTA to change?

If the discount doesn’t change then you just get the underlying performance. If a discount to NTA exists then that’s probably because the underlying performance is not flash.

If you’re going to pay somebody else a management fee to invest your your money, why wouldn’t you just then forget about investing, leave it up to them and enjoy your time in some other pursuit?

Unless there is a catalyst to eliminate the discount or you are a passive investor LIC's don't make much sense to me.
 

Best catalysts are full takeover, partial/full windup or material change in portfolio companies. Recent examples like CTN/CCQ and OCP. But for a concentrated portfolio of mostly listed assets the appeal may not be that high for a suitor.
 
skc said:
Best catalysts are full takeover, partial/full windup or material change in portfolio companies. Recent examples like CTN/CCQ and OCP. But for a concentrated portfolio of mostly listed assets the appeal may not be that high for a suitor.
Click to expand...


This comment is not referred to you SKC. Just a general comment.

Hope for a catalyst to come along because a large discount exists is not the same as a catalyst. A lot of opportunity cost can be incurred as you sit and hope. MEF only has a MV of 17Million why don't we band together and buy it? Or maybe we should just invert that thought. Why wouldn't we buy it.
 

I understand Craft... I wasn't responding just adding to your general comment.

There are plenty of companies that I think of buying on the ASX if I had enough money... and yes most of them along the lines of takeover, fire the board and sell the assets. I am sure it's been done before.

Now just need to find that $17m...
 
Craft and Skc, thanks for the feedback, my investing education continues! I had not thought about it in that much detail. I just liked the idea of buying a portfolio of shares at significant discount (say 30%) and waiting for the good times to return - this is the reason I bought CTN at 89.5 cents in Dec 2011.

Back to the individual stock picking.

Cheers

Oddson.
 

I do like this rule of thumb, had not thought of looking at it like that.

The way I look at is to look at the expected return on capital and to subtract the MER from that.

skc said:
LICs do have a place if you want some diversification and if you back people with track records that beat the market year after year (net of fees). Not so sure how many LICs actually tick those boxes.
Click to expand...

Probably not many, MEF has not been going long at all.


The way I look at it and please bear with me as there are many 'if's' in the following..

If I could buy a LIC with a NTA ~ $1.00 for around $0.63 and I liked the underlying investments and strategy and expected a return of 10% plus compounded (would be dissatisfied with less than 15%) then my return would be ~$0.10-$0.15 per share less the MER of ~$0.025 per share for a nice healthy return of ~$0.085-$0.125 on my $0.63 investment.

Well that was the plan......

Any how you can find todays 1/2 year results here.

http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=MEF#headlines

On a not unrelated topic I do like SRQ they also reported today.

http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=srq#headlines
 
PORTFOLIO UPDATE[/B]
Closed positions

Bought:
7,142 x TSM @ $0.66 = $4713.72 (25/07/11)
546 x MCE @ $6.95 = $3797.70 (25/07/11)
385 x FGE @ $5.37 = $2067.45 (26/07/11)
291 x FGE @ $5.34 = $1553.94 (27/07/11)
29,524 x SOO @ $0.105 = $3100.02 (01/08/11)
7407 x ZGL @ $0.43 = $3185.01 (05/08/11)
386 x MCE @ $5.15 = $1995.62 (08/08/11)
288 x MIN @ $9.96 = $2686.48 (08/08/11)
809 x MCE @ $4.20 = $3397.80 (24/08/11)
85 xBHP @ $35.60 = $3026.00 (22/09/11)
520 x CCP @ $3.83 = $1991.60 (08/08/11)

Subtotal $31,515.34

Sold:
7407 x ZGL @$0.40 = $2962.80
7142 x TSM @$0.49 = $3499.58
29,524x SOO @ $0.10=$2952.40
85 xBHP @$34.93=$2969.05
288 xMIN @$10.18=$2931.84
1741 xMCE @$3.50 = $6093.50
676 x FGE @ $4.53 = $3062.28
520 x CCP @ $5.00 = $2600.00

Subtotal $27,074.45

Capital gains (losses) ($4440.89)
Interest Paid / bank charges = $1721.57
Brokerage Paid = $518.35
Dividends Received = $549.32 Franking credit = $235.42

Tax Position, Capital Gains (Losses), Brokerage, Interest
($6,131.49) loss Franking credits = $235.42

Open Positions
Bought:
853 x CCP @ $4.48 = $3821.44 26/07/11
1115 x MTU @ $2.62 = $2921.30 08/08/11
65 x COH @ $45.85 = $2980.25 30/09/11
1373 xOKN @ $1.455 = $1997.72 23/11/11
837x MCE @ $3.08 = $2577.96 21/12/11
185 x QBE @ $10.81 = $1999.85 13/01/12
916 x PRV @ $0.655 = $599.98 25/01/12
1023 x NVT @ $2.93 = $2997.39 02/02/12
2976 x MEF @ $0.63 = $1874.88 27/02/12
Subtotal $ 21,770.77

Current Portfolio Position

853 x CCP @ $5.84 = $4981.52
65 x COH @$60.23 =$3804.45
837 x MCE @ $3.05 = $2753.73
2976 x MEF @ $0.63 = $1845.12
1115 x MTU @ $3.22 = $3757.55
1023 x NVT @ $2.93 = $3283.83
1373 x OKN @$1.21 = $1592.68
916 x PRV @$0.665 = $572.50
185 x QBE @$11.82 = $2266.25


Subtotal = $24,857.63


Total realised and unrealized loss -14.2% or - $3,086.86

Cash contributed $1250.00 ($50/week) from 26/01

Realized return on contributed equity -~ 591 %

Return on contributed equity -~347%

Credit available $3,211.17
 
Well reporting season is over so I thought a review of the portfolio would be in order.

Core Positions;
Cochlear

Despite the current short selling it seems the sky was not falling in on COH, I expect to hold this one for a long time with increased dividends every year and one day a sp over $100.00

Navitas

Normally I like companies with the ability to retain equity and generate a good return on it so the 100% payout ratio of NVT threw me for a while but then I realized they could grow with little or no capital required.
Would not like to see more companies acquired at a premium however.

M2 Telecommunications

This little growth machine deserves some time to pay me a whole heap of dividends.
Wannabe Core Positions;
Creditcorp

My best performer to date, however growth will be constrained in the Aus market and it has hit my estimate of IV.

QBE

Bought after the profit downgrade I really like the insurance side of the business but have some doubts about the long term performance of the float as it is invested predominately in bonds.
Will be looking to partake in the spp.

Matrix Composites

Will give this cyclical business a chance to live up to bright outlook.

The Rest;
Oakton Group

I still think this is a decent business, however it is hard to see a catalyst for a short term gain. I could not think of a worse time to sell with the recent change to the indicie

Merrick Capital Special opportunity Fund

No dividend I am fine with however I will be looking for a decent market beating return on NTA in the future.

Premium Investors

Same as above.
 
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