Ken Wan Value Fund: Year 2015 in Review

Outperformance of KLCI and Benchmark Kenanga Growth Fund

Snapshot of the Fund at 4th January 2016

Happy New Year! It is with pleasure that I announce and present to you a review of how my investment fund, Ken Wan Value Fund (“KWVF” or “Fund”), performed in 2015.

INTRODUCTION TO THE FUND

First, an introduction and background to KWVF. KWVF was started on 1st August 2015. Total assets (or capital) at inception was RM14,189.19.00, which consisted of the existing stocks I already owned, namely Marco Holdings Bhd and Paramount Corporation Bhd plus cash. The aim of KWVF is to maximise profits through a value investment approach. Currently, the Fund only invests in Malaysian stocks. I look for stocks which prices that are close or lower to their book value (“PBV”), good dividend yield (typically higher than 3%) and low price/earnings ratio (“PER” lower than 15). The FBM-KLCI and the Kenanga Growth Fund are used as benchmarks to KWVF.

It is important to note that I am not licensed nor sanctioned to invest money on others’ behalf. The cash and stocks in KWVF belong solely to me alone. The Fund is not registered with any authorities but I am just calling it a “fund” for lack of a better term.

WHAT HAPPENED IN 2015?

Mid-2015 was a great time (as any other time) to start a fund. The FBM-KLCI saw a decline of close to 200 points — from 1,750-mark to 1,550-mark — between August and September 2015. The sudden decline caused by (among other factors) investors’ response to the 1MDB scandal, decline in oil prices and depreciation of the Malaysian Ringgit (MYR) against the US Dollar (USD) meant there was a golden window of opportunity to grab stocks on the bargain. The KLCI eventually closed at around 1,690 before the New Year.

STOCKS INVESTED IN 2015

Taking advantage of the depressed prices of stocks in the August-to-September period, I invested in UNISEM (M) Berhad, then going for below RM2.00. The price movement was clearly a knee-jerk reaction, as there was no significant or material event to justify the stock to drop by such a huge margin. The stock was snapped up at an average price of RM1.70, and sold in December at RM2.46 per stock for a 42% profit (including dividends). Although there is still room for growth for this stock, I am not too confident to wait for such a “promise” of growth.

Snapshot of the completed transaction for Unisem

Another stock bought was GUH Holdings Berhad (“GUH”) which had a low PBV and had declared a dividend of RM0.05 per stock. GUH’s main business is manufacturing circuit boards, but is also involved in water/waste water industry and property. Since the stock had steady profits, its business is well diversified and had constant dividend declared over the years, I decided to put in a substantial amount of funds into it. The immediate realised profit was the 5% profit from dividends. The stock has been hovering around the RM1.00 mark, which translates to a return of 3.1% with dividends taken into account. The warning I keep hearing for GUH is that it is too diversified, consistent with the notion that ‘jack of all trades is master of none’. I am willing to put my faith, however, that this approach may yet be the right one in the current uncertain market climate.

The remaining stock added to KWVF was YTL Hospitality REIT (“YTLREIT”). This real estate investment trust holds and manages hotels around the world, including in Malaysia, Australia and Japan. The main attraction of YTLREIT is its yield of 7%, and in line with the Fund’s philosophy, also has relative low PBV and PER. YTLREIT has not been profitable to the Fund so far (paper loss of 1.37%), but I am confident that in time, it will bring benefit and buffer to the Fund with its yields.

EXISTING STOCKS BEFORE INCEPTION

The 2 existing stocks that were “transferred” to the Fund had a “mixed” performance.

Marco Holdings Bhd, which owns the distributorship to Casio watches, performed poorly. It was 16.51% down at the turn of the year from August 2015. I am not panicking as yet. I have pocketed quite a substantial profit previously from this stock during a brief period of spike when I sold half of stocks owned. In hindsight, I should not have been greedy (for higher profits), and should have just sold all the stocks owned at the time. A well-learned lesson, no doubt. Going forward, I don’t see any upside to this stock as Casio watches are hardly a sought-after luxury at this day and age. I do foresee this stock eventually de-listing or staying depressed at this price. On the other hand, rumour has it that its mysterious majority owner has the ability to cause any stocks to go up. So, let’s wait and see.

The other stock is Paramount Corporation Berhad, a property developer. I have not been optimistic with property developers’ stocks and have stayed away from them as a general rule. However, Paramount was very stable throughout the period under review, hovering at the RM1.60 mark since August. I believe it has, and will hold its current position with the current lowly PER and PBV. Together with a healthy yield, these are all indicative of a relatively low-risk stock, which is what the Fund is all about. My only concern is the property market which is in a state of limbo right now. It doesn’t look too good as every man and his dog seem to be involved in property development, despite a glut of properties already available in the market. It looks like I will have to take a long-term view for this stock.

Overall, I am quite contented with KWVF’s performance for its brief 4 months, even if it was mainly bolstered by that one or two stocks. My personal philosophy has always been to be contented with any amount of profit. I don’t seek “perfection” in requiring all my stocks to overperform. In fact, it has been a bonus to see the Fund outperforming the benchmark FBM-KLCI and Kenanga Growth Fund (see first diagram above).

Looking at the Fund’s performance from the paradigm of my investment journey, it has taught me some invaluable lessons. These lessons are also important to me.

Moving forward, 2016 is predicted to be another challenging year for every Malaysian as well as every other Citizen of the World. Fantastic. It is through challenges that we grow. For KWVF, I pray and hope it will continue to grow and continue to outperform the benchmark. I will continue to look for stocks that dovetail into the investment philosophy of the Fund and of me. Temporarily depressed stocks are sought after as well. Most of all, I will continue to look for investment lessons through this experiment/experience.

DISCLAIMER: The above are my own thoughts, and shall not be constituted, thought of or accepted as advice/recommendation/comment on any investment products. Please do your own homework and/or look for a qualified professional.

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