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Parkit Enterprise Inc.: Pay Discount On Parking Assets, Get Asset Management With Significant Multi-Bagger Potential For Free

Summary Parkit is a rare opportunity to own a start-up asset manager that is likely to raise significant capital in 2015 to execute on their strategy. Parkit and ProPark combine to create a competitive advantage and have a track record of success which shall help raise capital. Management is extremely bullish and CEO has been buying on the open market extremely consistently at prices higher than today. Shares trade at a significant discount to NAV and investors get the asset management business for free. We see multi bagger potential. (Note: Parkit is also traded on the Canadian TSX Venture Exchange under the ticker PKT.V. Volume on the Canadian exchange is greater than on the OTCQB shares.) We are continuously looking for a business with quality economics run by incentivized managers and where the market is getting the risk/reward ratio very wrong. Strong downside protection is absolutely paramount as the upside will take care of itself with upcoming catalysts. To find such an opportunity in a frothy market such as today one must be willing to search through some obscure places. For 2015, we will be closely following a small parking garage owner based in Canada called Parkit Enterprise Inc. (OTCQX: PKTEF ). The company owns equity in two US off-airport parking garages and has been working on transitioning to becoming a fund manager that aggregates high quality income producing parking assets via a private equity platform. We think the market is serving up a very attractive opportunity as it is extremely rare for the investing public to have the ability to invest in an emerging asset manager. Most often those opportunities are only available to employees or private equity investors. Even rarer is that Parkit already has a track record, has operating assets and is cash flow positive. Currently trading at a discount to NAV on the company’s current owned parking assets, we think the low US$0.40s (mid CAD $0.40s) is a very cheap price to pay for Parkit and does not at all account for the upside potential as a fund manager of quality parking lots. We will be watching Parkit very closely as capital is raised for their first fund over the next few quarters. Management has significantly raised their guidance on funds they will be able to raise and if properly executed, this company is worth many multiples today’s price. History and Fund Manager A Long Time Coming In years past, Parkit was originally called Greenspace and previous management before 2012 did not have a coherent strategy. They helped greenfield the construction of the Canopy parking garage located right outside Denver International airport (completed in 2010), but they ran a bloated cost structure which ultimately almost led to the company going broke even as Canopy performed well. To help transition the company into a leading parking industry company, they brought on Rick Baxter as CEO, some other talented managers and a board of directors with the private equity experience to turn the ship around and execute on an asset manager strategy. Since 2012 when management changes occurred, the company has paid down debt, set the platform for the company’s new fund management strategy and did this while management did not pay themselves for a year and a half. Management decided to take the compensation that accrued to them and roll that over as equity into the company. Unwarranted Recent Price Dive You would expect the market to be reacting positively to Parkit’s turnaround and future prospects, which it did to some degree in April after the announcement of the Expresso acquisition; however, shares have been falling from a high of $0.70 in both the Canadian and US listed shares since October. We think that the market is overreacting to the combination of the oil sell off and the recent resignation of John LaGourgue, VP of Corporate Communications, who was extremely bullish on the company’s long-term prospects. We think that the oil price drop does not change the investment thesis and actually could increase drivers’ interest to travel and park in parking lots. Also, LaGourgue left for personal reasons and as a sign of interest in the company’s long-term prospects he continues to keep 85-90% of the shares and options in Parkit. Keep in mind, many of his shares were purchased on the open market and that he likely sold some shares to diversify his investments. Business Current And Going Forward (click to enlarge) (Source: Parkit Presentation) Parkit has been operating in the past and currently under the model to the left. Parkit owns an equity stake in the Canopy and Expresso garages alongside ProPark America and a few other outside investors. Parkit does not operate these assets, ProPark America provides those services as that is within their circle of competence. Previously Parkit did not bring too much to the relationship other than the capital to invest into Canopy, but that is changing drastically as the new strategy emerges. Parkit’s new strategy is to, to put it simply, set up and run a parking garage private equity fund not too different from an asset manager in structure. As seen in the chart above and to the right, Parkit has already set up a fund with ProPark to act as a platform to raise institutional money to then be used to aggregate parking assets that both Parkit and ProPark manage. Parkit and ProPark both are General Partners (50:50 split) and will receive hedge fund like management fees (0.5-1% of AUM), acquisition fees ( Additional disclosure: This article is meant for instructional purposes and not meant as a recommendation to buy or sell. We are human and can be wrong, especially with our forecasts, so it is extremely important to do your own homework. The only kind of intelligent investing is through your own due diligence. We own both PKTEF and PKT.V.

A Comparison Of 3 Emerging Market Low Volatility ETFs

Summary Emerging markets have returned twice the U.S. markets over the last 11 years, but have struggled recently. Emerging markets are now very cheap, but investors may be put off by their higher volatility. Do low volatility emerging market funds deliver? Introduction Some years ago, emerging markets were all the rage. According to MSCI , emerging markets grew from 1% of the global market cap in 1988 to 11% in 2013. An investor who bought into iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) 11 years ago would have been rewarded with nearly a 400% gain, far ahead of S&P 500 (NYSEARCA: SPY ) (199%) and developed markets ex-U.S. (NYSEARCA: EFA ) (166%). EEM Total Return Price data by YCharts However, the above chart belies the fact that emerging markets have not performed well since the end of the financial crisis. Since 2009, EEM has returned only 72%, compared to 189% for SPY and 94% for EFA. EEM Total Return Price data by YCharts Given their relative underperformance over the past several years, is now the time to take a second look at emerging markets? Most analysts and fund managers are pessimistic on the prospects of emerging markets in 2015, which could actually be a contrarian signal. A recent Seeking Alpha article by Elite Wealth Management reported that in a November survey of fund managers with a combined $700 billion in assets, they were 0% overweight in emerging market equities, compared to 45% Japan, 25% U.S. and 8% Europe. Emerging markets are now very cheap. The table below shows the P/E ratios and dividend yields for the top 10 countries in EEM, compared to selected developing markets (source: Financial Times ). Also shown for the emerging market countries is the weight of that country in EEM. Country Weight % P/E Dividend yield % China 17.52 7.1 4.4 South Korea 13.64 15.6 1.2 Taiwan 12.20 13.9 3.0 Brazil 7.82 12.4 4.6 South Africa 7.75 16.4 3.1 India 6.69 18.2 1.6 Mexico 5.05 21.2 2.0 Russia 3.94 5.5 5.6 Malaysia 3.66 15.7 3.2 Indonesia 2.66 18.3 2.2 U.S. – 19.0 2.3 Japan – 16.5 1.7 U.K. – 15.9 3.3 Germany – 16.1 2.6 Canada – 17.9 2.8 We can see that the 9 out of the 10 emerging market economies have a P/E ratio lower than the U.S. (19.0). Only Mexico (21.2) has a higher P/E ratio than the U.S.; China and Russia have the lowest P/E ratios of 7.1 and 5.5, respectively. The following table shows the valuation ratios for ETFs of major world regions (data are from Morningstar and are forward-looking). Region ETF P/E P/B P/S P/CF Yield % U.S. SPY 18.03 2.48 1.78 7.77 2.08 Europe (NYSEARCA: VGK ) 16.19 1.74 1.04 6.96 3.21 Japan (NYSEARCA: EWJ ) 15.23 1.21 0.77 4.89 1.62 Asia ex-Japan (NASDAQ: AAXJ ) 12.68 1.39 1.17 6.05 2.43 Emerging Markets EEM 12.76 1.49 1.14 4.91 2.56 We can see from the data above that Asia ex-Japan and emerging markets have the lowest valuation metrics amongst the world regions. However, it might be argued that developed markets deserve a valuation premium over emerging markets due to their higher stability (see reasons below). Moreover, emerging markets have always had higher volatility compared to developed markets. This is likely due to a multitude of factors, such as less stable corporate and sovereign governance, less stable currency, smaller economies, reliance on foreign investment, and concentration in cyclical industries such as mining and energy. The below chart shows the volatility and beta values for EEM compared to SPY and EFA over the past 6 years. EEM 30-Day Rolling Volatility data by YCharts Low-volatility emerging market funds Would low-volatility emerging market (EM) funds be ideal for investors wanting some exposure to emerging markets, but with lower volatility? To my knowledge, there are three low-volatility EM funds on the market: EGShares Low Volatility EM Dividend ETF (NYSEARCA: HILO ), PowerShares S&P Emerging Markets Low Volatility Portfolio (NYSEARCA: EELV ) and iShares MSCI Emerging Markets Minimum Volatility (NYSEARCA: EEMV ). In a previous series of articles , we compared several high-dividend low-volatility U.S.-based funds. We found that those funds were able to achieve their dual objectives of high dividends and low volatility by overweighting mature and defensive industries such as utilities, healthcare and real estate. This article seeks to compare the three low-volatility EM funds. Note that this will be more of an overview of the three funds and rather than an in-depth analysis of a single fund. Fund details Details for the three low-volatility EM funds and EEM are shown in the table below (data from Morningstar). HILO EELV EEMV EEM Yield 4.63% 2.68% 2.59% 1.69% Expense ratio 0.85% 0.29% 0.25% 0.67% Inception Aug 2011 Jan 2012 Oct 2011 April 2003 Assets $32.1M $206.2M $1.90B $31.96B Avg Vol. 28.4K 49.9K 306K 60.6M No. holdings 30 187 243 817 Annual turnover 137% 101% 34% 22% EEM is by far the most massive fund, with nearly $32B in assets. The other three low-volatility EM funds have a wide variation in size. EEMV has $1.90B in assets, followed by EELV at $206.2M in assets. Surprisingly, HILO only has $32.1M assets even though it is the oldest of the three low-volatility funds. The volumes of HILO and EELV border on the low end, with only 28.4K and 49.9K shares changing hands a day, respectively. We can also see that HILO has the highest yield (4.63%) out of the three low-volatility EM funds and EEM, which is not surprising given that it’s also a dividend fund. The other two low-volatility EM funds, EELV (2.68%) and EEMV (2.59%), also have higher dividends than EEM (1.69%). Both HILO and EELV have very high turnovers of 137% and 101%, respectively. EEMV and EEM have lower turnovers of 34% and 22%, respectively. In terms of expense ratio, HILO is the most expensive ETF, with a fee of 0.85% per annum. EELV and EEMV are much cheaper, with expense ratios of 0.29% and 0.25%, respectively. EEM charges 0.67% in expenses, which seems very high for a “vanilla” equity fund. This is probably why Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) has outgrown EEM even though it was incepted two years later. VWO charges only 0.15% in fees and has accumulated over $45B in assets. Overlap The following table illustrates the overlap between the three low-volatility EM funds and EEM. Overlap statistics were obtained from ETF Research Center . HILO EELV EEMV EEM HILO – 5% 7% 2% EELV 5% – 37% 27% EEMV 7% 37% – EEM 2% 27% 31% – We can see that HILO has the lowest overlap compared to the other two low-volatility EM funds. This is probably because HILO also has a dividend focus in addition to its low-volatility theme. EELV and EEMV have the highest overlap, at 37% of total assets. Performance The graph below shows the performance of the three low-volatility EM funds and EEM since Jan 2012 (2 years). HILO Total Return Price data by YCharts We see quite a disparity between the performance of the three funds and EEM over the past 2 years. Both EEMV and EELV have managed to beat the benchmark EEM (6.23%). EEMV exhibited the best 2-year performance of 20.64%, while EELV returned 8.87%. On the other hand, HILO recorded the worst performance of -9.53%. The following table shows further performance and risk data for HILO, EELV, EEMV and EEM. Data are from Morningstar, except for volatility (2Y) and beta (2Y) which are from InvestSpy . HILO EELV EEMV EEM 1-year return % -12.21 -4.14 1.96 -0.94 3-year return (ann.)% -3.42 – 6.18 2.91 Volatility (2Y) % 15.6% 13.5% 13.7% 18.0% Beta (2Y) 0.94 0.80 0.87 1.17 Sharpe ratio (3Y) 0.01 – 0.77 0.37 We can see from the data above that despite their disparate performances, all three low-volatility funds have succeeded in achieving lower volatility than EEM over the past 2 years. Valuation The table below shows various value and growth metrics for HILO, EELV, EEMV and EEM. Data for all funds are from Morningstar (value metrics including dividend yield are forward looking). The first five rows can be considered as value metrics while the last five rows can be considered as growth metrics. HILO EELV EEMV EEM Price/Earnings 11.31 14.45 15.69 12.76 Price/Book 1.27 1.48 1.86 1.49 Price/Sales 0.99 1.18 1.51 1.14 Price/Cash Flow 5.42 5.18 7.38 4.91 Dividend yield % 9.96 3.09 2.81 2.56 Projected Earnings Growth % 11.23 12.34 10.97 11.76 Historical Earnings Growth % 0.73 11.05 5.06 -1.68 Sales Growth % 12.97 -17.34 -15.60 -13.79 Cash-flow Growth % 7.40 3.77 6.36 7.85 Book-value Growth % 8.70 -22.75 -26.56 -21.57 We can see from the table above that EELV has similar valuation metrics to EEM, while EEMV is slightly more expensive than EEM. On the other hand, HILO appears to be the cheapest out of the four funds. Interestingly, the current valuation of the four funds is inversely proportional to their performance over the past two years. HILO, the most “valuey” fund, has had the worst performance in the last two years, while EEMV, the most expensive fund, has done the best. The funds also appear to have many negative growth metrics, which could be due to the effect of a global slowdown on the growth of many emerging market economies that rely heavily on exports or foreign investment. Countries Perhaps the most important factor that would affect the performance of these EM funds is the distribution of the constituent countries in the fund. The following table shows the top 10 countries in each of the three low-volatility EM funds and EEM (data from ETF Database ). HILO EELV EEMV EEM Country Weight Country Weight Country Weight Country Weight Thailand 13.23% Taiwan 27.68% China 22.74% China 17.52% Malaysia 12.61% Malaysia 18.62% Taiwan 17.37% South Korea 13.64% China 12.54% South Africa 13.66% South Korea 9.40% Taiwan 12.20% Brazil 9.60% South Korea 9.30% Malaysia 8.80% Brazil 7.82% Mexico 8.23% Other 9.23% South Africa 5.50% South Africa 7.75% Czech Republic 7.36% China 5.08% Indonesia 4.88% India 6.99% Indonesia 6.96% Brazil 4.47% Brazil 4.44% Mexico 5.05% Chile 6.57% Mexico 3.83% Chile 4.21% Russia 3.94% Poland 5.10% Thailand 2.97% Philippines 3.75% Malaysia 3.66% United Arab Emirates 4.01% Chile 2.83% Qatar 2.80% Indonesia 2.66% The following graph shows the allocation of the four funds to the ten most represented countries in the funds. Size The table below shows the size distribution for the four EM funds (data from Morningstar). HILO EELV EEMV EEM Giant 24.18 26.03 34.16 50.62 Large 11.85 51.75 49.84 37.00 Mid 52.55 22.22 15.40 11.87 Small 9.20 0 0.61 0.44 Micro 2.22 0 0 0.08 And in graphical form: We can see that HILO has a rather interesting size distribution, with more giant and medium-cap stocks compared to large-cap stocks. EELV and EEMV have similar size distributions, with about 50% in large-cap stocks, 30% in giant-cap stocks and 20% in mid-cap stocks. On the other hand, EEM is tilted towards giant-cap stocks. Sector The final aspect to look at for the EM funds is their sector diversification. The following table shows the sector composition of HILO, EELV, EEMV and EEM. Data are from Morningstar. HILO EELV EEMV EEM Basic Materials 8.47 9.41 3.9 7.93 Consumer Cyclical 5.74 10.71 6.32 8.46 Financial Services 16.64 37.14 26.44 25.43 Real Estate 5.68 3.05 1.06 2.44 Communication Services 19.52 8.97 12.98 7.76 Energy 6.08 4.1 3.13 7.51 Industrials 24.19 7.87 7.66 5.73 Technology 0 3.77 13.03 20.9 Consumer Defensive 0 9.21 11.54 8.3 Healthcare 3.64 1.46 6.62 2.24 Utilities 10.05 4.31 7.92 3.31 And in graphical form: We can see from the data that financials make up a high allocation of all four EM funds, with EELV having the highest allocation at 37.14% and HILO having the lowest at 16.64%. HILO has the highest allocations to industrials (24.19%) and communication services (19.52%). The following graph shows the sector distribution of the four funds (individual sectors are not marked). We can see that EEMV and EEM have the most even sector distributions of the four funds. Conclusion All three low-volatility EM funds have managed to deliver lower volatilities over the past 2 years (compared to EEM), but with wildly disparate performances. EEMV exhibited the best 2-year performance of 20.64%, while EELV returned 8.87% and HILO returned -9.53%. If I had to pick a low-volatility EM fund, I would probably pick EEMV for the following reasons: It has the best performance record over the past two years while still recording lower volatility than EEM. Its three highest allocations are to China, Taiwan and South Korea, which are all in the top 5 of the cheapest emerging market countries. It has the lowest expense ratio (0.29%) out of all the EM funds studied. It has better sector distribution compared to HILO or EELV.

More Pain In Store For Greek Equities As Syriza Party Holds Firm On Anti-Austerity

Summary The Syriza party seems poised to win the general election scheduled for January 25th. Party leader Alexis Tsipras will not back away from seeking relief in austerity measures previously accepted. Should the country seek to leave the euro currency, it may be made an example for others that might follow. Expect to see the Global X FTSE Greek 20 ETF shares succumb to further pressure. In May of 2010, Greece accepted a bailout package. Then Finance Minister George Papaconstantinou described the deal as including, “tough austerity measures.” The Greek people understood why the deal had to be done, though. The country was on the precipice of Armageddon, with many bankers using the phrase “difficult but necessary.” Mr. Papaconstantinou would go on to say that Greece had a choice between destruction or saving the country and that, “we have chosen of course to save the country.” Today, the same warnings are being launched from all directions. Only this time, the people aren’t listening. Or, if they are, no longer believe them. The Greeks can now vote from experience, having lived for nearly five years with the austerity measures that Syriza, the political party currently leading in the polls, vehemently opposes. For them, more than enough time to discover they don’t care much for the taste of austerity; so much so that the country appears to be ready to explore what life is like outside of the euro. And if voters are anything like Anastasis Chrisopoulos, they probably don’t feel as if there is much to lose . When asked for his feelings on the original bailout, the 31-year-old Athens taxi driver said, “So what? Things will only get worse. We have reached a point where we’re trying to figure out how to survive just the next day, let alone the next 10 days, the next month, the next year.” But investors in Greek assets do have something at risk, and the market showed its disapproval of the country’s predicament by dropping the Global X FTSE Greece 20 ETF (NYSEARCA: GREK ) to within pennies of its 52-week low. If today’s -6.70% fall is an indication of future performance under a Syriza-led government, then prepare for more pain. Germany Says Austerity Is Working; The Greek People Disagree What we know is that, earlier today , the Greek parliament rejected Prime Minister Antonis Samaras’s nominee for president, and the country is now set to hold a general election on January 25th. Opinion polls point to victory for the Syriza party, which is set on eliminating the austerity terms accepted in exchange for a bailout package now valued near $300B. To hammer home this point, Syriza leader Alexis Tsipras said that , “In a few days the Samaras government, which pillaged the country, will belong to the past, as will the memoranda of austerity.” In response, German finance minister Wolfgang Schäuble indicated his position on the issue, stating that whoever assumed power must respect the agreements already in place and that, “the tough reforms are bearing fruit and there is no alternative to them.” To support this claim, the German’s can point to the fact that the Greek economy has returned to growth for the first time in six years, and that signs of a recovery are beginning to take hold. But the people will counter this argument not with numbers, but with experiences; their own experiences, which emphatically say that their lives have not improved during austerity’s reign. For all of the pain, unemployment for 3Q2014 came in at 25.5%, which is down from its peak of 28% in 2013 but almost twice as high as the number from 2010. (click to enlarge) More damning, though, is a statistic from the International Labor Organization that says the number of Greeks at risk of poverty has more than doubled in the last five years. The support for Syriza and frustration with austerity might be related to the lack of correlation with statistical growth and quality of living. What Does It All Mean I think the wheels are in motion and that Syriza will win the general election in January. While some believe Mr. Tsipras is only talking tough, I would disagree. He has softened his rhetoric a bit, but he and the party will not back away from demanding changes in austerity that are more than symbolic. However, the eurozone barely flinched at the news, which indicates that it may be quite comfortable with letting Greece forge its own path. For me, whether Greece is better or worse off in the euro over the long run is irrelevant to my investment thesis. I would be a seller of the Greece 20 ETF because I believe the shares will be pressured in the nearer term for a couple of reasons. For one, with the election of Syriza, there will be an extended period of uncertainly regardless of the path the country chooses. If Greece attempts to stay in the euro, it will have to meet the German’s somewhere further away than Mr. Tsipras’ current rhetoric places it. This negotiation would be intense and take some time. Conversely, if it decides to exit the euro, there will be an even longer period of uncertainty, with significantly more questions to answer. Secondly, and more importantly, Greece may be made an example for any other country thinking of following its path. There is talk that the fear in the eurozone isn’t of Greece leaving but rather that other countries may follow their lead. To alleviate this concern, game theory would suggest that interested parties attempt to make the transition difficult enough to give others pause. As cynical as this opinion may seem, I do believe it is a risk that must be accounted for. While it may seem tempting to buy Greek equities sitting at or near their 52-week lows, I would be a seller as I believe that uncertainly will persist through the January 25th elections, and the increasing risk of a euro exit will push shares further south.