Tag Archives: korea

The Asia Tigers Fund: A Conservative, Undervalued, And Discounted Closed-End Fund

Summary The Asia Tigers Fund provides diversified exposure to Asia with low valuation and a high discount. The fund’s P/E is currently 10.18, and it is trading at an 11.49% discount. The perpetual drop in the fund’s price since 2011 has resulted in low valuation. In a lot of cases, I prefer closed-end funds due to their relatively low valuation, and for the fact that they are often trading at a discount. Other closed-end funds that I recommend include the Aberdeen Indonesia Fund, VinaCapital Vietnam Opportunity Fund, and Vietnam Holding Ltd. The Asian Tigers Fund (NYSE: GRR ) is a closed-end fund that is managed by Aberdeen Asset Management. The fund’s incredibly low valuation and high discount is what initially made me interested in this fund. The fund’s P/E is currently 10.18 , and it is trading at an 11.49% discount . The advisor fee for the fund is 1% and the total expense ratio is 2.8%. A value-based comparison of other ETFs that invest in Asia clearly proves that this fund is superior. Market Vectors Vietnam ETF (NYSEARCA: VNM ): P/E is 16. iShares MSCI Hong Kong ETF (NYSEARCA: EWH ): P/E is 16 iShares MSCI Singapore ETF (NYSEARCA: EWS ): P/E is 13 . iShares MSCI India ETF (BATS: INDA ): P/E is 20 . iShares MSCI Philippines ETF (NYSEARCA: EPHE ): P/E is 19 . iShares Asia 50 (NYSEARCA: AIA ): P/E is 12 . Diversified Approach The fund’s geographical exposure to Asia is extremely diverse , providing exposure to the following countries: Hong Kong: 25.6% Singapore: 20.5% India: 16.4% China: 8.8% Taiwan: 6.3% South Korea: 5.2% Thailand: 4.5% Philippines: 3.5% Malaysia: 3.3% Indonesia: 1.1% The fund’s small allocation towards China is comforting, as well as the fact that 62.5% of its assets are invested in Hong Kong, Singapore, and India. The industry approach is also extremely diverse, although around 56% of the fund’s assets are invested in the financial services and information technology industries. The top 10 fund holdings make up 43.3% of the fund’s total assets, further edifying the fund’s strategic and diversified exposure to Asia. Annual Returns 2012 2013 2014 YTD Asia Tiger Fund (Price) 27.13 -8.13 3.42 -3.39 Asia Tiger Fund (NAV) 23.53 -5.05 3.27 -0.40 Pacific/Asia Ex. Japan Stock (Price) 25.33 -7.19 3.40 -0.68 Pacific/Asia Ex. Japan Stock (NAV) 25.40 -4.33 3.99 1.32 Source: Morning Star Overall, there have been no major discrepancies between the performance of the Asia Tigers Fund and its benchmark. Apart from 2012, performance of the fund has not been substantial. I am optimistic about the fund due to its diverse country, company, and industry approach, as well as its low valuation and high discount. For these reasons, it stands out as the one of the most conservative options for value investors to gain diversified exposure to the growth of Asia. GRR data by YCharts The perpetual drop in the fund’s price since 2011 has resulted in low valuation. Other Closed-End Funds In a lot of cases, I prefer closed-end funds due to their relatively low valuation, and for the fact that they are often trading at a discount. Some other closed-end funds that I have come across also provide similar valuation and discount for investors, and offer the opportunity for investors to gain access to a single country. I will also list three closed-end investment funds in Indonesia and Vietnam that I have previously written about, in order to provide a holistic view of what options there are for discounted closed-end funds in Asia. Aberdeen Indonesia Fund (NYSEMKT: IF ): The fund’s P/E is 7.21 and it trades at a 12.28% discount . I remain optimistic about this fund, despite the exchange rate movement risk. VinaCapital’s Vietnam Opportunity Fund ( OTCPK:VCVOF ): This fund’s P/E is 10.83 and it trades at an 18.35% discount . Vietnam Holding Ltd. ( OTC:VNMHF ): The fund’s P/E is 5.65 and it trades at a 14.06% discount . The liquidity risk should be noted, as its average 3-month trading volume has been 905. The Asia Tiger Fund is an appropriate fund for investors who prefer diversified exposure to Asia and have reservations about specific countries like Vietnam or Indonesia. Regardless of varying investment objectives, I am a proponent of investing in deeply discounted closed-end funds that provide exposure to Asia’s growth. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Avoiding Panic: Keep Your Head And Look To Short Volatility

U.S. stock market performance has taken a turn for the worse in the week of August 17. Volatility has risen dramatically for several reasons, including China currency actions and expectations for near-term Fed action. SVXY, the ProShares Short VIX Short-Term Futures ETF, has taken a hit as volatility has spiked to levels not seen since 2011. Rising volatility represents an opportunity to find an attractive entry point in SVXY. The U.S. stock markets have proven remarkably tame in 2015 until the recent volatility in August. From the beginning of the year until the middle of August, the S&P 500 had risen 1.6%. However, this past trading week, from August 17 to August 21, the S&P dropped almost 6%, leaving the index at a 4.3% loss for the year. While market reactions can never be predicted in advance, the pundits can often retrospectively flag the reasons, namely China’s currency actions, North/South Korea war games, the Iran deal, you name it. During this same week, volatility, as measured by the VIX, sky rocketed, starting the week at the mid-14s and rising to nearly 28 at the close of regular trading hours on Friday, nearly doubling. The VIX rose more than 45% on Friday alone. ^VIX data by YCharts At this level, the VIX is reaching territory not seen this year, and looking back, not since 2011. ^VIX data by YCharts While spikes in the fear gauge are event-driven, in the background, the U.S. economy is chugging along, with slow but moderate growth, the hallmark of the economic recovery over the past 5-6 years. US GDP data by YCharts This slow but steady economic growth, along with the decrease in unemployment rate , creates positive long-term economic trends for the U.S. We have been in a bull market for a number of years, and the rise in employment, along with the rising dollar creating lower priced foreign goods, should continue to provide for slow but steady economic growth. Therefore, the spike in the VIX represents, yet again, an opportunity to trade in volatility and seek to capture short-term gains. While there are several ways to play this, my preferred approach is to trade in the ProShares Short VIX Short-Term Futures ETF (NYSEARCA: SVXY ). SVXY dropped over 16% on Friday August 21, to 70.39. While this is not a low for the year, as a short VIX vehicle, traders can opt to stage their buys into SVXY to capture the eventual decrease in volatility when the latest threat blows over. Now the “pressure” on SVXY to rise or fall depends on contango or backwardation, and several Seeking Alpha authors have written great articles about them, so there is no reason to summarize the issue further. Looking at contango or backwardation is the logical approach for short-term traders and after the dramatic rise in volatility, the VIX will be backwardation. While SVXY is generally viewed as a short-term vehicle, there is no denying that over its history, a 5-year buy and hold would have generated great returns. SVXY data by YCharts However, the volatility of this volatility vehicle is outstanding with the potential for significant draw-downs. It would require immense discipline to hold SVXY for the long term, given human behavior – you would literally need to put money away with no access possible for a decade or more. But if done, it could be highly profitable – and one great article suggests that over the long term, if one could hold and avoid trading in SVXY, huge amounts of wealth could be generated. While each investor needs to invest according to his/her own philosophy, timeline and risk tolerance, seeking an opportunity in SVXY when it spikes has proven to be worth a look. Disclosure: I am/we are long SVXY. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

401(k) Fund Spotlight: Templeton Global Bond

Summary Lead manager Michael Hasenstab is a contrarian who is not afraid to take concentrated positions in securities where he has a high degree of conviction. Templeton Global Bond has outperformed 99% of its global bond peers over the last 10 years. The fund is wisely avoiding the most dangerous areas out there for global bond investors – sharply higher yields and sovereign debt of Japan, Western Europe, and Southern Europe. Background I select funds on behalf of my investment advisory clients in many different defined contribution plans , namely 401(k)s and 403(b)s. I have looked at a lot of different funds over the years. 401(k) Spotlight is an article series that focuses on one particular fund at a time that is widely offered to Americans in their 401(k) plans. 401(k)s are now the foundational retirement savings vehicle for many Americans. They should be maximized to the fullest extent. A detailed understanding of fund options is a worthwhile endeavor. To get the most of this article is important to understand my approach to investing in 401(k)s. Here are my key principles: 1. I do not buy ‘index hugging’ active funds if a similar index is available. Index hugging funds are those that are overly diversified and their performance never strays far from the index. Index funds almost always have a lower fee so I prefer to just own the index and let the fee savings provide a performance tailwind over time. Lastly, index hugging active funds are generally managed by people who don’t really know how to invest. This may sound harsh, but it is true. They are institutional herd products. 2. When buying actively managed funds, I look for those who are willing to go against the institutional herd and follow their own independent investment approach. I do not mind the higher fee if they have an established track record and it is not necessary that they always beat the index. Sometimes investment positions take a bit longer to pan out than investors would like to see on their quarterly statements. I take comfort in putting money with a manager(s) who is not afraid to stray from the herd. 3. I do not care what Morningstar says. Templeton Global Bond Fund Templeton Global Bond has five different share classes: A (MUTF: TPINX ), Advisor (MUTF: TGBAX ), C (MUTF: TEGBX ), R (MUTF: FGBRX ), and R6 (MUTF: FBNRX ). The class A shares are often found in 401(k)s with the load waived (i.e., no up front sales charge) and a net expense ratio of .90%. This is a reasonable fee given all that this fund offers. With $65 billion of assets it is one of the largest global bond funds out there (in fact, it was the largest in a screen I ran on Fidelity’s website). Templeton Global Bond is relatively free to roam in the bond world wherever it wants. The fund typically invests the majority of its assets in investment grade government bonds from anywhere in the world. It also regularly invests in various currency instruments and derivatives. The fund tends to focus on sovereign debt and not corporate debt. It may invest up to 25% of its assets in below investment grade debt and all of its assets in developing (or emerging) market debt. The fund’s lead manager, Michael Hasenstab, is well known within the investment industry, appearing regularly in publications such as Barrons . He has gained a reputation as a contrarian with a willingness to take concentrated positions on specific bonds that he has a high degree of conviction in. This has generally worked out well, except for a large position in Ukraine government debt that has cost the fund several billion dollars. (About 2% of the fund is currently invested in Ukraine.) In a January 2013 interview with the Financial Times , he warned that it was time to get out of “safe” government debt. His call was right on. The 10-Year Treasury Yield subsequently soared a few months later during the so-called “taper tantrum,” as shown on the following chart (note: bond prices fall when interest rates rise): ^TNX data by YCharts Excellent Performance Track Record Over the last 3-Year, 5-Year, and 10-Year periods (as of December 31, 2014), Templeton Global Bond has crushed both the benchmark and its peer group. The following table shows this: 3-Year Return 5-Year Return 10-Year Return Templeton Global Bond – Class A (without sales charge) 6.3% 5.8% 7.4% Citigroup World Government Bond Index -1.0% 1.7% 3.1% Lipper International Income Funds Average 2.1% 2.9% 4.0% As far as performance goes, there is little to complain about. The fund has consistently shown is value relative to its peers. Portfolio Positioning The makeup of the current portfolio is always the most important thing I look at when evaluating a fund. Currently, given the dynamics of my forecast , my general view on the global bond market is as follows: Completely avoid the sovereign bonds of Japan and Western Europe denominated in Yen and Euro. Completely avoid local currency emerging market bonds (non-U.S. dollar denominated) except for Russia (I expect oil prices to spike soon). U.S. and Pound Sterling government debt with very short maturities is okay. Selective U.S. dollar denominated emerging market bonds are okay, especially debt of corporations with U.S. dollar revenues and local currency expenses. Duration should be short though. Cash positions should be sizeable to take advantage of potential price dislocations created by a lack of market liquidity. (Fund cash positions should also be high to meet shareholder redemptions without having to sell quality bonds at low prices.) How does Templeton Global Bond stack up in light of my outlook? Notably, as of July 31, 2015, the fund has an average duration of only .07 years and an average weighted maturity of only 2.49 years. With a duration of .07, rates could theoretically rise 300% and the fund would only fall by .21%. (Duration measures the exposure of a fund to interest rate fluctuations.) Hasenstab clearly has the fund positioned exceptionally well for a rising rate environment. However, the trade-off here is a low yield. The fund’s 30-day standardized yield is only 2.18%. The distribution yield is higher at 3.04% (calculated by taking the standard monthly distribution of .03 x 12 divided by the current NAV price). Given the near-term danger of a sharp rate rise, I think the low yield is worth accepting. I like the fact that 79% of the fund’s currency exposure is in the U.S. dollar (as of June 30, 2015), which is more than twice that of the comparable index. I especially like the fact that, through derivative exposure, the fund has a 24% net short position in the Japanese Yen and a 36% net short position in the Euro. I am expecting the Yen to outright crash and this fund is well positioned for it. As of June 30, 2015, the fund’s largest sovereign debt holdings are as follows: South Korea – 14% Mexico – 9% Malaysia – 7% Poland – 7% Hungary – 7% Brazil – 5% Singapore – 4% Indonesia – 4% Currently, the fund also holds some smaller positions in the debt of the Philippines, India, Sri Lanka, Serbia, and Slovenia. These 13 countries are pretty much it. Sovereign wise, there is nothing here that is overly concerning to me given that the duration of the fund is so low. I like the fact that the managers have taken highly concentrated positions in the countries they feel have the strongest economic fundamentals. Hasenstab is clearly an investor and not an index hugger. This fund is by-and-large safe from the disaster awaiting holders of Japanese, Western European, and Southern European government debt. In fact, countries with strong fundamentals could see an influx of capital seeking safety as it flees these developed markets. Lastly, the fund is 28% in cash. This gives it ample room to meet client redemptions during a crisis and the flexibility to pounce on higher yielding debt when rates rise. Conclusion I think now is a good time to hold this fund if it is available in an employer-provided 401(k) plan. The hits to the fund from holding Ukraine government debt are behind it. Most notably, the fund is clearing avoiding the most dangerous risks to global bond investors. When it comes to the potential for a fixed income fund to deliver decent returns in the current market environment, Templeton Global Bond is an oasis in the midst of a desert. Investing Disclosure 401(k) Spotlight articles focus on the specific attributes of mutual funds that are widely available to American’s within employer provided defined contribution plans. Fund recommendations are general in nature and not geared towards any specific reader. Fund positioning should be considered as part of a comprehensive asset allocation strategy, based upon the financial situation, investment objectives, and particular needs of the investor. Readers are encouraged to obtain experienced, professional advice. Important Regulatory Disclosures I am a Registered Investment Advisor in the State of Pennsylvania. I screen electronic communications from prospective clients in other states to ensure that I do not communicate directly with any prospect in another state where I have not met the registration requirements or do not have an applicable exemption. Positive comments made regarding this article should not be construed by readers to be an endorsement of my abilities to act as an investment adviser. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.