I have a rookie or newbie investor ask me, I find interesting, below summarise the conversation.

A: what is a ABC closed ended fund
I : Blar blar explain and tell fund is investing in value stock, or undervalued stocks, which can reap good profit over the long term.

A: (Seem understand what I explained), so now the fund holding large amount of cash, the reason?
I : Yes, some fund manager does hold cash for their strategic and marking viewing. As it may wait opportunity to buy as the manager may not that bullish and slight bearish about the market

A: There is a stock traded below its NAV around 20-30%, is it considered undervalued?
I: Yes, by definition, and in theory.

A: The stock is a closed ended fund, so wise to buy below 20-30% of its NAV?
I: It is a bargain.

A: The stock is performing well or having sterling performance since inception, and traded at discount, and the stock is ABC fund itself, so since ABC holding plenty of cash, why not ABC bought its own share, as it is a undervalued stock that traded below 20-30%? Isn't it fund can make even more money and objective is to buy undervalued stock?
Also isn't it ABC fund/stock itself had magnificent performance and perform well?
So isn't it, it is a good target to invest by the fund?

I: ........

What A had asked is not about buying back to close the gap between NAV and share price.
What A had asked is investing in ABC fund itself.
Since ABC fund is a good long term investment, isn't it a good investment target by ABC fund itself, since it has a big discount of 20-30%. <--- this is the issue A had asked.
I cannot answer this, because as a fund, you look for good stock to invest, right? So why excluded ABC stock then?
Also it is merely another investment target, A had not asked to dump all the cash into it, just a portion like ordinary investment target.

So as mentioned above, if CI is peak now, and may collapse based on the above posted opinion or,
isn't it ordinary investor should avoid ABC share now as well?

As last part, the statement is viewing ABC fund is a long term investment and a good long term investment, and not suit for short term investors, isn't it suit to the ABC fund to invest in ABC share price? <----- this is key question asked by A, that I am speechless to answer to him as a experienced investors.

Indeed?

Yes, A trust ABC manager, but ABC manager may quit, then A cannot do anything. This is major fear for A.
as ABC manager is not the major shareholder, unlike ordinary UT, fund manager cannot be sacked by unit holder, but in closed ended fund, fund manager position is determined by board of director and board of director is determined by majority of shareholders, right?
Anyway, this should be not a major issue for A for now.

Also, there is no issue about short term or long term or guarantee profit or whatever, A fully aware of it.

Just A asked some common question, it is not nice for me to tell A, hey if you do not trust ABC manager, then leave it. Not doing good for me that already involved in stock market for decades to say like that.(may make me sound arrogant, as I am not WB or pronounced as brilliant investors as well, so make me look silly if I say like that).
A just asking nicely, not nice for me to answer back to him like that.

A just needs asking some question that only make clear of his mind only.

Just like A had asked if confidence about the ABC stock, and the stock NAV may achieve double or triple from now, isn't it a good and bargain investment target? including, ABC fund itself.

If ABC fund may achieve and become NAV RM10.00 in 8 years or 10 years from RM3.00, so isn't it investing in ABC stock is indeed a good target to have?
So ABC fund itself should consider it, right? Why ABC fund not considered it?
Why need to wait 40% discount to the NAV?
A discount of 20% + potential (may) future good appreciation/performance from Rm3.00 to Rm10.00, is not good enough for ABC fund consideration? Not many stocks out there may have such a good performance.

The above some simple summarised questions are those I still scratching my head to answer to A.

Yes, I understand, it is not about trust or not trust, surely investing in stock market, you trust the company management already, same with UT or closed ended fund.

But I taught previously there is discussion on NAV vs share price issue, aka investors shouldn't care about share price is Rm1.50, or RM2.40, but purely look at NAV when investing... or no?

A threw some question to me, so cannot be I just answer to him, don't ask too many question, if don't trust, leave it, or vice versa, trust, just invest.

This post has been edited by cherroy: Nov 19 2012, 04:40 PM

Since it is a maiden dividend, I wonder can see any shareholders vote against the dividend or not.

Btw, the special dividend need to incur 25% tax?

This post has been edited by cherroy: Aug 22 2013, 10:47 PM

I taught dividend give no value.
Once the dividend being distributed, NAV drop accordingly.

Somemore, those at high tax bracket need to pay tax for the dividend received.
9 cents x 0.75 = 6.75 cents, shareholder only receive 6.75 cents (if those not eligible for claiming tax credit one, or at high tax bracket whereby illegible to claim fully )

While NAV will be deducted 9 cents due to dividend given.

Why give dividend then?

A lot of investors, including fund managers, are underperforming index.

That's why some said, if do not know what stock to buy, better buy index ETF.

http://www.forbes.com/sites/greatspeculati...-underperforms/

If A stock that was Rm1.00 10 years ago, now also Rm1.00 (without dividend given), and with everyday transaction gone on with millions of shares, means the value of the stock remain the same.
But with transaction of billion worth incurred over the 10 years period, there is commission charge incurred, means somebody need to lose money.
You do not need a rocket mathematics to count.

Index component is constantly changing over the time.
Generally those poor performance one being ditched out, while taking in good performance one.
So index tend to be trending high over the time, as constantly ditching poor and take in good one.

Just like Citi, Kodak were DJ component before.

Same with MAS that was KLCI 100 component stocks.

This post has been edited by cherroy: Oct 31 2013, 09:58 AM

As a closed ended fund, the objective is to make return from the investment made.

Branding and public awareness will make ordinary consumer based business good aka increase revenue eventually company can earn more profit.
But closed ended fund is not doing ordinary business, it is an investment.

Closed ended fund profit solely come from investment made.
Whether it is a hot selling cake fund or not, it doesn't affect the fund performance (NAV).

Don't get me wrong, not to say fund should or shouldn't make advertisement.

Just what I am try to highlight is that the awareness and advertisement may make public aware such a fund, but it doesn't affect nor can improve the fund performance.
Fund NAV appreciated or depreciated is solely because of its underlying invested asset.

It is better to distribute the cash as dividend to shareholders, instead buyback.

With consistent dividend each year + good fund performance = free publicity.

Just like some good high dividend stock out there, investors knew them well without need a single cent to advertise their company.

Seems like the saga between TTB and Laxey still there.

http://www.thestar.com.my/Business/Busines...from/?style=biz

High redemption of mutual fund, open ended fund during market crash is quite a norm as well.
It is investors money, they decide what to do with their money. I don't see anything wrong nor scary about it.

Yalor, everyone has a right to vote or against any resolution, this is basic right of shareholders.

Shareholders shouldn't be just like stamping machine, accept whatever resolution thrown at them.

It is board of director that always need to answer to the shareholders to whatever resolution,
not the other way round, that shareholders need to give answer why they agree/object a resolution.

That's the disadvantage of closed ended fund, and one of many reason why closed ended fund is not popular due to lot of disadvantage compared to open ended mutual fund.
Having said that, it is same with ordinary listed company, if major shareholders voted yes on whatever resolution, minority which less than 50% is powerless to object as well.

Closed ended fund is good for fund manager to operate as
1. They don't need to worry about redemption issue.
2. Fund management fee collected is rather fixed due to fund size remain the same throughout, while open ended fund size vary each day due to redemption/reinvestment whereby fund manager normally collect management fee based on total asset they managed.

As investors, I prefer open ended,
as
a. I don't need to worry the price difference between NAV and share price.
b. I can redeem at anytime at any amount, as for closed ended fund, if there is no buyer in the market, I may need to sell at lower price in the open market which back to (a)

As fund manager, indices generally is the ultimate benchmark how well the fund manager is performing.
If the manager perform worst than indices, why waste effort and money to invest with the fund manager, isn't it better off with just invest in indices?
(You can buy index nowadays through futures market, index ETF/fund etc).
Mind that fund manager charge annual management fee, it is not a "free" service offered, while buying index, you do not incur any management fee.

You cannot set a target of gain in stock investment, as no one has the ability to predict the stock is gaining or losing this year or next year.

The comparison is just like if one make a gain in investment of 3% pa over the long term, it is considered poor, as one is better off with putting the money in FD which also make 3%.
Why taking more risk while have the same return?

So it is same with fund manager, if fund manager performs worst than indices, one is better off with investing in indices.
Why spent more money to pay the fund manager, while you have alternative to have better gain without spending any money?

FKLI

FKLI is one of best tool to track, just because it is derivatives, doesn't mean it is dangerous, you just need to know how to manage.

Buy 1 lot FKLI, fork out a few K initial margin, prepare potential go reverse for margin top up, it is as same as taking out a ten K to invest in fund.
Every month just roll over the contract, as identical to holding long term on KLCI component stocks.

While there are other index fund as well available in the UT market.

The history data for KLCI,
1 Jan year, index

2007 -- 1096
2008 -- 1443
2009 -- 878
2010 -- 1272
2011 -- 1524
2012 -- 1523
2013 -- 1685
2014 -- 1865
2015 -- 1757

Currently at 1574, has not yet below 2012, 2011 level.

This topic started off 2008.

So just posted the data back to 2007.

Actually, the fund manager is right or not, doesn't matter too much for investors.

Investors of fund or shareholders didn't "enjoy" the bull run until 18xx, as fund was high position in cash
nor
investors of the fund get any benefit or profit even the manager indeed was right, as the fund (as far as I know), doesn't have position in shorting nor having put warrant/option.

So both way, investors/shareholders don't get profit, as fund price stagnant throughout for many years, nor having much dividend payout except one year, if not mistaken. Correct me if I am wrong.

So, what is benefit for shareholders when the fund manager is indeed brilliant right?

2011 KLCI opened at 1524.

Today KLCI is 1563.