I-Capital - An Asian Berkshire in the making?

As this is my first blog on stock picking, I prefer to choose one that do not require alot of analysis and is easy to understand.

I-Capital (5108) is one of the only 2 close-end funds that are listed on the KLSE. For those that are not familiar with Closed-End Fund, it is a fund that has a fixed amount of shares outstanding, unlike mutual funds which are open-ended (allow new shares to be purchased). Similar to ordinary mutual funds or unit trust, they are managed by a fund management company. Closed-end funds behave more like stocks because they are traded on an exchange and the price is determined by market demand after an initial IPO process. Their main business activity is merely to invest in financial securities, making profits through Capital Gains and receiving of dividend/interest incomes. Unlike ordinary mutual fund, Closed-end fund does not necessarily trade at its Net Asset Value (NAV), but usually, not far from it. So what do I like about this fund? Simple enough.

First and foremost, I like the MANAGEMENT team running the fund, which is Capital Dynamics Asset Management Sdn Bhd (CDAM), helmed by Tan Teng Boo. Tan is a well-known figure in the financial market. His views, analysis and comments can usually be seen in many local and international financial medias, like CNBC, Bloomberg, Astro, TheStar and etc. I found that his views are daring and are usually against the crowd. But most of the time, they turn out to be right than wrong. Most interestingly, I sensed a few similarities between him and Warren Buffett. (Those who are familiar with the investment style of Buffett will understand what I mean after reading it's annual report here. Nope, the white hair does not count as one similarity).

Secondly, the investing style of the fund suits me confortably. Value growth orientated. Most of the companies it invested in are those I am happy to hold myself, including (past and present) Lion Diversified, UMW, Asiatic, Digi, F&N and etc. So, buying into I-Capital alone saves me alot of trouble, comparing to monitoring those 10+ stocks personally. If you feel like comparing his portfolio against yours, it can be found at its latest annual report here. Comparing this to Berkshire Hathaway? Although Berkshire actually owns many businesses and control some listed entities, most people still treat it as a fund managed by Warren Buffett himself. What's wrong for leaving your hard-earned money to someone whom you trust could manage it better than you?

Thirdly, its past record speak for itself. Average of over 20+% p.a. compounded returns since inception and beating KLCI and EMAS Index every single year along the way. If the fund can maintain that kind of returns going forward, every RM1,000 invested will turn to RM1mil in less than 40 years.
(side note, you might want to skip the following part, nothing important: if you considered 40 years too long, there are 2 way of getting there faster, 1. invest more up front, instead of RM1k, put in RM900k, you will reach RM1mil in less than a year; 2. put in more along the way, like an additional RM1000 every year; 3? go pray hard that he can do better than Warren Buffett. Even my idol, the greatest-investor-of-all-time returned a few percentage points better, what do you expect? 4? ok ok. Go ask your remisier, maybe he knows some syndicates that can do it faster; 5? I've run out of BS, told you there are only 2 ways, practically, haven't I? thanks for reading though!)

Fourthly, Closed-end Fund have more flexibility compared to ordinary mutual fund. For one, during market panic, when mutual fund holders opt to liquidate their position, like those we've seen during the sub-prime crisis weeks ago, these mutual funds have to liquidate their position in other assets to meet its obligation, albeit at an unfavorable price. As for Closed-end fund, its market price and NAV might fluctuate during panics, but as long as the fundamentals remain intact, it doesn't have the pressure to liquidate its holdings. For more comparisons, please visit I-capital homepage at http://www.icapital.com.my/.

Well, as I said in the first line, this is my first blog that I have attempted to write on stock valuation, I have picked one that is easy to explain and understand, and hence I-Capital fits the bill. My target is to buy whenever it is selling at or close to its NAV. Honestly, it has been doing quite well for me, especially last year when its NAV gains 46%!! Anyway, I am happy with an average of 20% annual compounded return.