Financial News Anecdote

Straits Times article in "Money" section on 7th Mar 2015 (Saturday) headlined "Upbeat sentiment lifts local bourse", and went on to say "Hopes on positive US jobs data and optimism in Europe are key reasons"

Another Bloomberg article also dated 7th March 2015 states "S&P500 tumbled in the final session of the week after data showed employers added 295,000 workers to payrolls in February, .. unemployment rate dropped to 5.5 percent, the lowest in almost seven years."

The same reason leads to 2 very different outcomes, amusing indeed. Why is that so? Singapore is 13 hours ahead of New York, and this is a perfect example of people finding reasons to justify stock market's performance, and there isn't a need for it in the first place.

Performance of CPFIS and ILP Funds

This post is inspired by the Sunday Times article on 1 Mar 2015, titled "CPFIS-included funds outperformed the STI"

The article compared the performance of CPFIS and ILP funds to the Straits Times Index over a 1 year period. I'm quite sure a longer time horizon will tell a different story.

I went to the source which provided the data (http://www.imas.org.sg/index.php/resources/report) and extracted data all the way back from 1999. Investing (especially for retirement) is for the long term.

To have a fair comparison, I will use the MSCI World Total Returns (TR) as the benchmark (data which the IMAS report provides), as the universe of Unit Trusts and ILP Funds invests in the whole world (Asia, US, Emerging Market etc).

	3 Year Rolling Total Returns (SGD)
	Dec-02	Dec-05	Dec-08	Dec-11	Dec-14
MSCI World TR USD*	N.A.	N.A.	-31.66%	25.60%	60.04%
CPF IS Unit Trust (Equity)	-40.17%	74.71%	-27.68%	42.73%	40.11%
CPF IS ILP (Equity)	-39.47%	60.60%	-27.40%	32.86%	38.53%

*Data of MSCI World not available in reports for period 1999-2005

I shall re-arrange data from the above table into the following 2 sections:
I extracted the cummulative yearly returns and summarised them into the following 2 sections:

CPFIS Funds vs ILP Funds vs MSCI World Index
The table and graph below shows the cumulative Total Returns since Dec 2005:

	Dec-05	Dec-08	Dec-09	Dec-10	Dec-11	Dec-12	Dec-13	Dec-14	Dec-14
MSCI World TR USD	100.00%	114.43%	68.34%	87.10%	89.28%	85.83%	94.22%	124.05%	137.36%
Singapore Straits Times CR	100.00%	151.96%	77.24%	127.05%	139.87%	116.04%	138.87%	138.89%	147.55%
CPF IS Unit Trust (Equity)	100.00%	137.00%	72.32%	107.40%	114.73%	99.70%	112.26%	127.98%	139.86%
CPF IS ILP (Equity)	100.00%	139.03%	72.60%	107.41%	112.74%	95.39%	106.79%	122.61%	132.03%

The performance of Unit Trusts and ILP are for the entire universe of equity funds, in the respectively categories. One would achieve the above performance only if one buys the entire basket of equity funds in the respective categories.

On the other hand, one can just buy one (or a few) ETFs directly like the iShares MSCI World Index ETF, to obtain the equivalent performance of the MSCI World TR performance.

CPFIS Unit Trusts vs ILP Funds

	Cummulative Total Returns (SGD)
	Dec-99	Dec-02	Dec-05	Dec-08	Dec-11	Dec-14
CPF IS Unit Trust (Equity)	0%	-40.17%	34.54%	6.86%	49.59%	89.70%
CPF IS ILP (Equity)	0%	-39.47%	21.13%	-6.27%	26.59%	65.12%

The performance of ILP Funds trails that of Unit Trusts' in all the 3-year rolling periods where there are gains. In periods where there are losses, the ILP Funds did only slightly better by about 0.3%.

I can conclude that ILP Equity Funds are in general a terrible investment vehicle. The reason behind their sub-par performance might be due to their higher fees or just plain lousy fund managers.

Summary

• The above CPFIS Unit Trusts and ILP Funds have not take into account the effect of sales charges, which is levied every time an investment is made (e.g. monthly for ILP monthly premium payment).
• One can just invest in the World Index to achieve comparable performance to funds managed by "Professional" fund managers.
• The exception might be if one believe in his/her Financial Advisors' forecast which sector will prosper in the next 15 years, and concentrate the investments in the particular sector.  Good luck to those who trust these forecasts/predictions.
• ILP Equity Funds greatly underperform Equity Unit Trusts.

Company Analysis Pt 2

A continuation of Pt 1, which looked at the earnings of the company.

Based on their latest 2014 Annual Report, I shall summarise briefly the company's Net Worth (a.k.a. Book Value).

Amounts stated are in millions, unless otherwise stated

Assets

Cash

The company holds $298 million in cash and equivalents

Properties and Land

	Book Value	Liquidation Value
Investment Properties	$654	$654
Leasehold Land	$0.283	$0.283
Total	$952	$952

The company holds the above assets, which probably can be liquidated close to the above stated value of $952 million.

Investment Holdings

		Book Value	Liquidation Value
Short-Term	Investments (quoted)	$31.6	$15.3
Long-Term	Investment (quoted)	$127	$63.5
	Investment (unquoted)	$16.6	$8.80
	Development property	$241	$120
	Amt due from associates	$85	$42.5
	Total:	$501	$250

Assuming a conservative liquidation value 50% of book value: $250 million.

Receivables

	Book Value	Liquidation Value
Trade Receivables	$16.0	$8.0
Amount due from Associates	$114	$57
Cash pledged to bank	$39.3	$39.3
Amount due from  jointly ctrl entities	$0.460	$0.23
Total:	$170	$104.5

 

As the company is in net cash position, it is unlikely it will default on its bank borrowings, hence the cash pledged to bank will be considered 100% recoverable.

Amount due from associates is quite significant. They are businesses where the company has a 20-50% equity stake in, and are incorporated in Indonesia, Malaysia and PRC.

Total liquidation value of Receivables: $104.5 million.

Inventories

	Book Value	Liquidation Value
Inventories	$15.1	$7.5
Total:	$15.1	$7.5

The book value of the company’s Inventories is after deduction of allowance for obsolete inventories. So a 50% margin of safety should be more than sufficient, leading to conservative Liquidation Value of $7.5 million.

Adding the total liquidation values of the above assets, the total sum is $1.314 billion.

Liabilities

Let's look at what the company owes.

	Book Value
Current Liabilities	$134
Non-current Liabilites	$325
Non-controlling Interest	$3.08
Total:	$462

Total liabilities and non-controlling interest of $462 million.

Summary

With assets conservatively valued at $1.32 billion and liabilities of $462 million. The company has a conservative net worth of $852 million.

The company has been in existence since 1957 and was listed in 1973. The market as on 13th February 2015 is selling this company for $803 million. One can buy $852 million (conservatively valued) worth of assets for just $803 million.

On top of this, these assets based on past 10-year record, has been generating on average, annual EBT of  $77 million and operating cashflow of around $33 million.

Lastly, this company has been growing its Net Tangible Assets every year for the past 10 years.

I'll leave it to the individual to decide if this company, Metro Holdings, is a good buy.