AyG
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Post by AyG on Jul 13, 2015 11:27:00 GMT 7
I'm in the process of setting up an offshore investment portfolio for someone who lives in Thailand. For me, the pretty much automatic choice for this sector has been the Aberdeen New Thai invesment trust. However, I've now tried to trade it over a few days, but the bid/offer spread is consistently 4-5%, which for me is rather unacceptable.
I suspect the problem lies with the small size of the fund - the market cap is just over GBP 48 million and the normal market size 750, whilst I want to buy 21,500 (roughly GBP 80-85,000 - which doesn't sound like a lot).
I'm presuming I can't do anything about the bid/offer spread, so I've looked for an alternative. The best I can find (from a limited range on the platform) is a Fidelity fund [LU0048621477]. (The less attractive alternatives being Templeton and HSBC GIF.) However, the Fidelity fund has provided an annualised return in GBP of 14.4% over 10 years versus Aberdeen's 16.8%.
The Fidelity fund has no initial charge, so, if history were to repeat itself I'd recoup the bid/offer spread on ANW in a couple of years, and then be ahead. But if only things were that simple.
Looking at the last 5 discrete calendar year performances in GBP I see:
Fidelity 3.3 -1.0 19.4 16.0 36.9
Aberdeen 0.4 -6.0 38.0 22.3 35.5
ANW's superior performance appears to be the result of one rather good year and may not be repeated. A small factor in favour of Fidelity is that it's USD-denominated, as is the cash to buy it, so I save 1% on FX fees.
So, what to do? Accept a very large bid/offer spread on ANW, or buy the Fidelity fund? Any and all thoughts appreciated.
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Post by Fletchsmile on Jul 13, 2015 13:36:02 GMT 7
If it has to be an offshore solution, then one option is to have a word with your broker to see if they can do anything for you. On the institutional side, it's common for a large shareholder or shareholder with a larger than usual volume to place their shares thru an intermediary broker to exercise the transaction on their behalf so that the market price isn't too distorted by the transaction being undertaken.
In this situation though, I'd probably steer away from ANW. If it's not liquid enough when you enter, the more serious situation would be the liquidity risk if and when you come to sell. If you're just wanting to sell a part and can wait it may not be so much of an issue. If you need (rather than just want) to sell in full though you could be stuck accepting very unfavourable prices.
For me I wouldn't want that extra liquidity risk that seems to come with ANW. Markets are reasonably benign at the moment. Liquidity could dry up even further in difficult times and 48 million is quite a small fund. Normal market size of 750 based on the numbers you've said is under 3k a time, and you're looking for almost 30 times that
Also by nature as an investment trust there will also be the discount/premium issue. Likely in difficult times a discount will increase to make the bid-offer spread issue worse, when you happen to be the one offering/selling.
You have to wonder what would happen if the Thai stock market tanks 40%, ANW market cap drops to around 29 mn, how wide would the bid-offer spread be? and what would the discount go to as people want to exit? but the buy side market volume is even lower.
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Post by rgs2001uk on Jul 13, 2015 14:26:37 GMT 7
My question, why the need to hold either of them?
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AyG
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Post by AyG on Jul 13, 2015 14:37:15 GMT 7
My question, why the need to hold either of them? It is always prudent to include a bias towards one's home market - in this case Thailand. It means one's investments are coupled to the economy of where one's going to make the bulk of your expenditure, plus there's no foreign exchange risk entailed. In the case of Thailand, I'd suggest that such a bias not be too large, but for there also to be a bias towards SE Asia and (to a lesser extent) the Asia-Pacific region. A common mistake expat investors make is to invest disproportionately in their former home country - something that makes no sense unless one plans on returning there, unless one thinks that one's home country's markets are going to outperform every single other market on the planet. |
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Post by Fletchsmile on Jul 13, 2015 19:00:23 GMT 7
I remember that the discount premium on this fund was also a bit of a nuisance that significantly distorts performance, so just looked it up to see how it had faired. Actually worse than I remembered for volatility. Currently sits on 15% discount. In some ways that sounds cheap, but then in 2010 and 2011 it was pushing closer to 25 % discount. So by no means near its lows although could go improve. The pace at which that discount can shift is also alarming: In 2013 it peaked at a small premium, before plunging a couple of months later to a discount of over 15%. So in the space of a couple of months the discount moved by 20% (+2/3% to - 17%). Combined with the lack of liquidity, that wouldn't be acceptable from my perspective. That's noise I really wouldn't want if I was using it to finance part of my living in Thailand, as bearing in mind it's also on top of the movement in NAV/ Thai stock market itself. www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=ITANW&univ=T&pagetype=performanceWould also be useful to strip out the movement in discount over the last 10 years, as I think that probably distorts the comparison with the Fidelity fund, eg Over 5 year, ANW is + 115.9% but the NAV moved only +98.6%. So 17% points is coming from that very volatile discount over 5 years. The other factor I think you raise is Aberdeen's performance. We've seen a general drop in performance of several of their EM funds in recent years. While a lot of that might possibly be down to unusual markets. QE etc, I think you're right to question are they still as good as they use to be. I still like them, but don't think they stand out as much as they used to, and in Thailand I've started to prefer other fund managers in recent years. So if holding them OK. But buying new, there may be better choices. |
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Post by Fletchsmile on Jul 13, 2015 19:25:54 GMT 7
The solution for me would be as follows: I believe the best Thai equity funds are run from Thailand. Performance certainly shows that over time. In the same way the best UK funds are run from the UK. So if it's for someone living in Thailand, who's going to use the money here, I'd say well worth considering bring the money over here, and buy onshore unit trusts. First the downside: charges will be a little more. After that some of the upsides: - Performance-wise the best returns for me have been from Thai equity funds I hold in Thailand rather than Thai equity funds held outside Thailand/offshore. eg Aberdeen Thailand LTF is up around +110% over 5 years (unit value after charges = net NAV) which exceeds the +99% movement in NAV for ANW even if adjusted for GBP/THB FX, which is about 4%/5% eg UOB Good Corporate Governance LTF is up over +135% in that same 5 years. This has been my preferred Thai fund in recent years. As mentioned I think Aberdeen has dropped off a bit. - The markets have certain elements to them where being on the ground is key. The Thai stock market community is "very well linked" when it comes to gossip shall we say  - If a portfolio for someone else based in Thailand, what happens if/when you are no longer around to manage it? Could well be easier for them to deal with it themselves here. For family in the UK I manage money for I use UK providers. For my Thai wife and kids I prefer Thai providers. Simply if I die, it will be easier for them to deal with assets in the country they live. - GBP 80k would get you Priority/Premium banking, which again would help if you personally aren't around to deal with it, as well as bringing other benefits - Close proximity, just pick up the phone or walk into the branch if BKK based - Good tax environment - select accumulation units and its zero. - At some point it will need bringing into Thailand. Doing as a one off would save on bank transfer charges rather than say every so many months - USD/THB rate is favourable at the moment around 34. May get better of course, but longer term will weaken. So timing is decent. One off transfer of a large amount would get a better rate - With a unit trust no worries about liquidity. Much more liquidity and demand for Thai funds here so no worrying on bid-offer spread. If you pick LTF versions there is an ongoing inflow and outflow so natural liquidity - Unit trust pricing based on NAV so not worrying about being caught by that discount, at the worst possible moment. - Unit trust generally lower risk and less volatility than ANW. (Not always the case for UTs vs ITs but definitely in this case) |
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Post by rgs2001uk on Jul 13, 2015 22:49:28 GMT 7
My question, why the need to hold either of them? It is always prudent to include a bias towards one's home market - in this case Thailand. It means one's investments are coupled to the economy of where one's going to make the bulk of your expenditure, plus there's no foreign exchange risk entailed. In the case of Thailand, I'd suggest that such a bias not be too large, but for there also to be a bias towards SE Asia and (to a lesser extent) the Asia-Pacific region. A common mistake expat investors make is to invest disproportionately in their former home country - something that makes no sense unless one plans on returning there, unless one thinks that one's home country's markets are going to outperform every single other market on the planet. I wasnt questiong the thought process, more the stock selction. I also hold Thai stocks and live here, would I go all in and invest my lot here, NO CHANCE. |
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AyG
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Post by AyG on Jul 14, 2015 10:32:46 GMT 7
Looked at yesterday's trades on the LSE. There were 4. Total volume 2240. And I would like to buy 10 times that. Clearly there are some issues with ANW's management of the trust. They are seemingly doing nothing to contain the swings in discount to NAV. Looking at their other trusts, it seems to be the same, with discounts ranging from -26.75% to +4.6% and most being around -10%. This in turn means they are unable to issue new shares leaving the trust small and illiquid. This really is a pity since the investment process has worked well. Onshore Thai funds isn't really an option given that the individual concerned doesn't like keeping assets within in Thailand, other than a bare minimum of cash. Given the assertion "the best Thai equity funds are run from Thailand" I wondered how ANW stacked up against the best Thai funds. I picked five Thai large cap equity funds rated 5* by Morningstar at random and compared their annual total return against ANW, with ANW's performance corrected for exchange rate. My actual approach isn't 100% correct, but is good enough for present purposes. My findings were that comparing the average of the five Thai funds with ANW, there was no clear pattern. In four of the eight time periods ANW did better; and in four of the periods the Thai funds did better. What did slightly surprise me, however, was the variability of the funds' performances. For example, in 2009 the best fund returned 75.2%, the worst 34.5%. Similarly, in 2012 the best returned 75.9%, the worst 36.4%. I've attached the spreadsheet. Incidentally, with ANW, it's run from Singapore, but with 3 of the 5 investment managers Thai and based in Bangkok. Attachment Deleted |
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Post by Fletchsmile on Jul 14, 2015 13:05:20 GMT 7
... Onshore Thai funds isn't really an option given that the individual concerned doesn't like keeping assets within in Thailand, other than a bare minimum of cash. .... A lot of people have that perspective. It's a shame as they miss some good opportunities and convenience. I've invested with Thai fund managers like Aberdeen (previously Nakorthorn, then Schroders) since late 1990's and never felt money to be unsafe, except at the start when I was least familiar and doing it for first time |
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Post by Fletchsmile on Jul 14, 2015 13:19:49 GMT 7
... Given the assertion "the best Thai equity funds are run from Thailand" I wondered how ANW stacked up against the best Thai funds. I picked five Thai large cap equity funds rated 5* by Morningstar at random and compared their annual total return against ANW, with ANW's performance corrected for exchange rate. My actual approach isn't 100% correct, but is good enough for present purposes. My findings were that comparing the average of the five Thai funds with ANW, there was no clear pattern. In four of the eight time periods ANW did better; and in four of the periods the Thai funds did better. What did slightly surprise me, however, was the variability of the funds' performances. For example, in 2009 the best fund returned 75.2%, the worst 34.5%. Similarly, in 2012 the best returned 75.9%, the worst 36.4%. I've attached the spreadsheet. Incidentally, with ANW, it's run from Singapore, but with 3 of the 5 investment managers Thai and based in Bangkok. Yes the average funds are here too, as are no doubt some of the worst. If you're picking at random bear in mind 5* is not necessarily the best perfomers as Morningstar takes into consideration many other factors Consistent long term top performers are: - UOB Good Thai Governance (5*) - Bualuang - Krungrsri - Aberdeen (4*) As mentioned above over 5 years, when comparing NAVs UOB and Aberdeen onshore beat the ANW performance for cumulative years. I would expect the other 2 would also. It's difficult to measure above 5 years for ITs because it's not easy to access the NAV data (mostly they show only share price and share price isn't a reliable measure as shown above) I used to hold Thai funds outside Thailand, every time I ran these comparison exercises on NAV vs NAV basis local funds came out on top. |
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AyG
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Post by AyG on Jul 14, 2015 13:38:22 GMT 7
I should have been clear. The comparison I made was using the NAV performance of ANW. Morningstar UK has NAV performance data for it going back to 2005. For the Thai funds I could only find 8 1/2 years' data - at Morningstar Thailand.
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Post by Fletchsmile on Jul 14, 2015 14:39:57 GMT 7
I guess at least you've shown to yourself that you're not losing out total return wise if you invest via onshore. There aren't many investment trusts for Thailand only. Another option would be Aberdeen Singapore run a unit trust for Thailand with both USD and SGD classes. It's run with a similar approach to ANW and Aberdeen Thailand here. You would need to find a discount broker to go thru as Singapore initial charges without discount are higher than Thailand. I believe on this it is up to 5% if you go direct and fail to get any discount. Stan Chart used to have promotions from time to time where they would offer funds like this at 1% - 2% initial charge. Other brokers/ discount brokers would likely do similar depending on who you use. Would be worth paying that 1% to 2% to avoid the liquidity issues on the investment trust. I used to hold it myself a few years back, but sold when I simplified to bring all my Thai equity investments onshore. There's also various Thailand ETFs around like iShares, although probably won't match ANW's performance, it would be more liquid. Not sure how liquid though |
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