Wednesday 11 December 2013

iCapital: discount to NAV

On BFM an interesting talk about iCapital, the only closed end fund on Bursa Malaysia:


I agree with what was said on the radio program. I am a long time investor in iCapital and the discount to its NAV is indeed pretty frustrating.

The solution (as also mentioned in the program) is quite simple and is used by a closed-end fund (in which I invested) in my home country The Netherlands:
  • when the stock trades below 95% of its NAV then the closed-end fund will buyback its own shares until the discount has narrowed;
  • when the stock trades above 105% of its NAV then the closed-end fund will issue new shares at market price, again narrowing the discount.
In practice, this worked very well, the share traded very close to its NAV.

The only other closed-end fund that was ever listed in Malaysia (Amanah Millenia Fund, before known as Amanah Smallcap Fund) was delisted and liquidated in 2007, also due to the persistent discount to its NAV. On a side note, the current Menteri Besar of Selangor, Tan Sri Abdul Khalid Ibrahim, was the Chairman.

I am not sure if it is allowed under Bursa's rules for closed-end funds to buy back its own shares and/or to issue new shares. If it isn't allowed then they could consider changing the rules, it might revive this fund type, which does have its own merits versus for instance open ended funds like unit trusts.

1 comment:

  1. I had just liquidated my Icap yesterday. I plan to hold only 100 units but unfortunately not all my orders are fill so I end up holding a little bit more. I had fed up with Mr TTB's arrogant and pessismistic view! Even he is now holding 50% cash but he can't run away from a crash! If the market crash I can buy cheaper than now! Moreover there are tonnes of signs that he is not managing Icap and it was only used as a tool for Mr Top 5 Fund Manager to promote himself as a gloabl player! He is now busy on managing money for the high net worth clients and his global funds!