Should I Invest In iCapital's Global Funds?

I got a request to comment on iCapital's 'international' fund performance fee and I was asked if the fee was justifiable and if the fund was worth investing.

In regarding to fund performance fee. Much had been written about it by blogger AhYap in his posting Tan Teng Boo Responds to iCapital International Value Fund and Global Fund Performance Fee Issue! But Still Not Addressing The Real Problem. I would suggest one to give this posting a good read (no point in me repeating what's being said and more so, I have nothing to add. :D ) because I do find that the points raised are very much a concern for the prospective investor and that these concerns needs to be addressed before the investor makes an investment into the fund.

Why?

Reasoning is so simple and logical. It's not wise that an investor invests in a fund where the fund structure is so biased or stacked against the investor. The odds are against the investor. In layman's term: Hard to make money! The fund manger would most likely make money than you (in regardless of the fund performance!) Now this does not sound like a smart investment, does it?

Anyway what about the funds itself?

The funds was launched almost a year ago. From their website: The i Capital International Value Fund Launch

• Stock markets are currently at their lows. It is an excellent time for investors to tap into this exciting opportunity, not only recoup their losses, also to enjoy exciting, long term capital appreciation. Action has to be taken urgently as the global markets are already starting a new bull run.

I like to make one comment. Yes, last year indeed would be a great time since the stock markets then was indeed at their lows. Yes, let me give credit to iCapital for that. ( See I do give credit) but then and now, is a world of difference. Since iCapital likes to compare their fund nav with MSCI World and MSCI All Country Index, perhaps a simple view of the charts is appropriate for one to gauge how low are the stocks currently compared to last year when these two funds were launched. ( Valid question to address? )

How? How would you interpret these two charts of MSCI World and MSCI All Country? Let's NOT predict where the charts are heading but look at where these index are at currently. They are not at their highs, and neither there are at the lows. But gauging at where it is, would you define it as 'lows'? ( And of course, one could expand the question by addressing the current financial and economic woes globally. Would this be a great time to be investing? Yeah, of course the global markets could go higher, no doubt but then who's to say we won't visit the lows again? How? You have to address this, not me. :D )

Now the greatest asset of any fund is the fund manager itself.

Yes, the performance of the fund most likely would not be replicated if the fund is managed by someone else, which is why it's so important, in my flawed opinion, to question the integrity of the fund manager.

Do you trust the fund manager completely? 100%? Sure?

So how do you trust a fund manager? Obviously, not everyone, will get to know him personally. So how else to gauge him? Well for me, I could be wrong but one way I would judge him is by his 'market actions', what he says and what he does in the market. And I would see if there is any conflict of interest behaviour. Are these logical questions to ask? Well if you insist on gauging him based on fund performance and totally discounting character of the fund manager, I guess the rest of this posting would be a waste of time. For me, fund performance or the ability as a fund manager is without a shadow of a doubt, a must but so is the issue of the fund manager. Trust of the fund manager is so, so very important.

April 2008, I wrote the following posting: What Do You Think of ICap's Recent Disposal Of Shares Held? . What happened was TTB was quoted in the press to be 'unabashedly bullish' in spite of the apparent market meltdown in US. ( Let me quote him again "“Firstly, the subprime problem remains just that – subprime. Secondly, while many large financial institutions have been badly hit, the central banks have successfully averted a credit or liquidity crunch scenario. Thirdly, the US economy is certainly slowing down but a recession is only a possibility, and not certain.” ). So if you hear this famed local value investor making speaches like this, won't you feel bullish too? Now get this... the problem with that bullish statementS (it wasn't just one statement, it was several!) made publicly, the following quarterly earnings report, iCapital.biz, the local closed end fund, announced it had disposed securities worth 50.999 million!!

How? Publicly he said 'unabashedly bullish' but at the very same period, his fund dumped securities worth 50.999 million like plague! ( see this posting More Rumblings On Tan Teng Boo's ICapital's Disposal Of Shares also)

Why tell everyone you are bullish when you are actually disposing a lot of shares?

And since iCapital has an independent investment advisory business, they are issues to address yes?

Personally, I find no reason why the need of the investment advisory business. Surely if iCapital fund managing business is good, why bother with investment advisory? Can make money meh? And because it owns fund managing business and investment advisory business, the integrity questions will never end!

Yes, for example, does the fund buy stocks they are recommending? Obviously, they would. Simple reasoning. If the stock is no good, the investment advisory won't recommend it and neither the fund will buy it. But what if, things get skewed to the left? What if the advise is given because the fund holds the stock? What if the fund contradicts what the investment advice given? See how messy these questions are? And since so messy, why is iCapital still insisting on keeping that business?

For example: On August 2008: More on iCapital Transparent Issue. I compared iCapital's stock recommendation list as of July 2008 and I was amazed to read the stocks all carried HOLD or BUY ratings but when I compared to its 2008 annual report (click here: CAPITAL.BIZ BERHAD ) iCapital the fund said it had sold!

In the posting iCapital: How Independent Is The Advice When They Hold Vested Interests In The Same Shares They Are Advising On?, I compared the shares disposed, with assumption it had all been disposed during the period, 1st Dec 2007 to 29th Feb 2008, since according to its earnings notes, it had disposed some 50.999 million in that period.

The following was what I noted:

• Take Boustead Holdings, it traded as high as 7.00+ during this period. It's now 4.74.
  Take Intergrax, it traded a as high as 1.40+ during this period. It's now 0.695.
  Take Lion Diversified, it traded as high as 2.00 during this period. It's now 1.03.
  Take Petronas Dagangan, it traded as high as 8.60+ during this period. It's now 7.00.
  Take Poh Kong, it traded as high as 0.70+ during this period. It's now 0.44.
  
  It would appear to me that iCapital fund management was spot on in disposing these shares during that 1st Dec to 29th Feb 2008, where it disposed some 50 million worth of shares. Yes the sum of disposals were as much as 50 million ringgit!
  
  Absolute brilliant for the fund!
  
  But what about their subscribers? (the stocks listed above all had either a buy or a hold recommendation as stated in the posting here )

Yes, the fund contradicted what its own investment advisory stock recommendation!

Now on the issue of the investment advisory recommending a stock in which the fund had vested interest. See iCapital And Swee Joo (long posting! :P) Companies fundamentals were questionable. So was its earnings but yet, iCapital gave it a buy rating when it had vested interest in the stock! (And what about the Mieco saga? )

How?

And then there is Axiata! See iCapital Lost 14 Million In Axiata Without Explaining Why

Well, iCapital lost a lot money in Axiata. That wasn't so much the problem. The problem was, it chose NOT to disclose WHY it sold in its quarterly earnings notes. I thought iCapital should have shown the investing public more respect by disclosing the reasoning why. Yeah, iCapital finally did explain why but only in its agm. Was the action acceptable? I did not think so. To wait for the agm to get the explanation is not acceptable. The investing public had the right to know immediately since the size of the loss was staggering and more so since iCapital had preached investing terms like 'value investment' and 'buy for the longer term', why did iCapital dispose its holdings in Axiata? What happened to fund 'investment philosophy? This closed end fund was a traded entity. It's listed in the local stock exchange and as much as the stock could go up, it could also be sold down! To not disclose why was simply not acceptable. Not for me.

And yeah, some do not LIKE what I had pointed out in iCapital. See iCapital: As Long As There Is Result, You Should NOT Question. Their reasoning is "As an investor, what matters most to them is returns on investments.If TTB can outperform the market, who cares what mistakes he makes? Who cares whether he explains his decisions or not?"

Me? I repeat again.

But as long as iCapital.Biz is a public listed entity, I believe I have the right to POINT out all the mistakes he makes and as long as it is a public listed entity, it is ONLY correct that he address this issue by explaining to the shareholders and the investing public. By NOT doing so only reflects so poorly on the integrity of the fund and TTB himself.

And this is my flawed opinion and no matter how flawed it is, it's mine and it's my right of opinion.

Anyway, so how now?

Based on all these issues, what do you think of this fund manager?

Isn't the conflict of interest one glaring concern? And yeah, what about integrity?

For me, I believe all these questions needs to be addressed when one is thinking about investing in iCapital's global funds. And yes, read AhYap's blog on the issue of fund performance fee too! These are valid issues to address.

Anyway, please understand that these are my mere second opinions and I do hope that it helps and most importantly, end of the day, it's your money, not mine and if you think my posting is severely flawed, so be it.

I am just a nobody and I am not an advisor and neither am I a fund manager.

Ok?