Idea: Tracker Fund of Hong Kong (2800.HK)

The objective of the Tracker Fund of Hong Kong is:


"..... to provide investment results that closely correspond to the performance of the Hang Seng Index ("Index").

The Manager seeks to achieve this investment objective by directly investing all, or substantially all, of the TraHK's assets in shares in the constituent companies of Hang Seng Index in substantially the same weightings as they appear in the Index."


And that is indeed what is happening, providing results very close to the HSI.

The largest holdings of its current portfolio:

The yearly charges are very low, as detailed by David Webb:

" ..... the Tracker Fund remains the most efficient way for those who cannot pick stocks to own a piece of the HK market, costing around 0.1% p.a. compared with almost 2% on your MPF funds."


I think that the Tracker Fund (and thus the HSI) is undervalued at the moment.

One clue can be found in the share price:

In the "goldilocks" years (before the Global recession of 2008/09) the share price probably overshot it's fair value, while during the recession it went too low. May be a valuation of about HKD 20 was fair for those years.

But the current price is still in that same region, meaning that the share price has not appreciated over about eight (!) years.

Another clue can be found in the dividends (which the company pays twice a year):

The last column shows the yield at the current share price, it has been steadily rising, and one can expect a total dividend of around HKD 0.80 this year, for a yield of close to four percent. That is rather rich, I think it will come down eventually, not because the total dividend amount will come down (it will most likely continue to rise steadily), but because the share price will go up.

In other words: while waiting for the share price to rise, one can enjoy the rather rich dividend yield of about 4%.

However, as always, there are risks involved:

• The results of Hong Kong companies are tied to the economy of China, which at the moment is not doing well; I assume that is temporarily, and in a few years all is going full steam ahead, but that is an assumption
• Globally things are rather "shaky" (think: Brexit), which could give downward pressure to the share price in the near future
• There are quite a few banks in the portfolio, personally I am not too enthusiastic about that, I had rather seen more non-financial companies
• The Hong Kong Dollar is tied to the US Dollar, which has performed very well in the past; that could change in the future, even the peg could eventually be discontinued which could have a negative effect on the share price (at least in the short term)

Disclaimer: this is not a recommendation. Please do your own homework, and make your own investment decisions or ask advice from a professional advisor. I do own (at this moment) shares in the Tracker Fund.

Shift in focus of this Blog

This blog is about 4.5 years old. Some stats:

• 860,000 page views, about 15,000 per month
• 1,097 blog posts, from "copy cat" articles with hardly any new content to heavy researched articles costing hours (sometimes days) of work
• 1,127 comments (after deleting the usual ads and rubbish/insulting comments), often interesting ones

Certainly not bad at all, much better than I would ever have imagined.

But ..... a blog about Corporate Governance issues is often quite negative because of its nature.

And, may be more worrisome, the effect that this blog had on regulatory enforcement is about zero, I reckon. I am not aware of a single case where this blog actually made a noticeable difference.

That is not exactly unexpected in the Malaysian context, where enforcement is notoriously weak (and basically non-existent when VIPs and VVIPs are involved, as the 1MDB saga makes plainly clear) and given the "shoot the messenger" culture. But it is still frustrating.

Therefore, I have decided to shift focus and to start highlighting some of my investment ideas, something that I have avoided so far in this blog.

Areas of interest:

• Under-researched small caps and mid cap companies, focused, well managed, dividend paying, high ROE, no or little borrowing
• However, I will sprinkle large cap companies in between, I do see quite a few with interesting value
• "Special cases", like well managed Closed-End Funds with low management fees trading at a discount to its NAV, REITs, etc.
• Countries of interest: Hong Kong, US, Singapore, Malaysia (probably in that order) plus the rest of the world
• Sometimes it will involve a whole industry or country/region
• In general: more about (deep) value investing: articles, magazines, books and fund managers

However, I would like to "warn" the reader:

• Despite being an active share investor for more than two decades and having had good/excellent investment returns, I am not a licensed financial adviser, nor do I have any intention whatsoever to become one. In other words, there won't be "hard" buy/sell recommendations, more sharing of ideas highlighting the positive aspects but also the risks involved
• Not surprisingly, I will have a position in each company that I will write about; I will leave it to the reader if this falls under "putting my money where my mouth is" or "conflict of interest"; owning shares in the company will bias my views, I am aware of that
• I might or might not inform the reader when I sell shares in the company, or buy more
• The reader should always do their own homework and take their own decisions

Why do I do this, since I do not earn any revenue from this blog?

First of all it forces me to write my thoughts down in public, which is in itself a healthy exercise.

Secondly, I often have received good investment tips from others, also I have been rather lucky in live, so this is part of "paying back".

The danger: some of the ideas I will share might perform poorly, I am actually sure that not all will perform good. I don't know a single good fund manager who has not had his/her share of "duds", especially investing in the small and midcap area.

Besides doing their own homework I do expect readers to spread their risk by buying a basket of shares (six to ten should be ok, if spread out over different industries and/or countries).

Also, having survived the 1997/98 crisis (having invested for instance in shares like Public Finance (foreign) and watching them go down from RM 4 to below RM 1), I strongly recommend readers to use zero leverage. There is simply no need to use leverage, it just takes somewhat more time to get good results, while avoiding losing it all. Only two years later Public Finance was back to around RM 7, while having paid good dividends in the mean time (somewhat later it was merged into Public Bank, at a good price). Even a low leverage of say 25% would have bankrupted me in that crisis.

This blog will still report from time to time about CG issues, especially updates on older cases, but less so.

I hope the readers like the new focus of this blog.

Wishing all readers a joyous and blessed Hari Raya AidilFitri.