AIMS Property Securities Fund (APW)

Apologies for the lack of posts. Been a little busy with some projects. 

In my last post on APW (December 1, 2014 click here) the unit price was 11.5c and I took the view it was worth on holding on for further gains given the massive discount to NTA and lots of cash.

That view proved to be correct.

The price has marched forward to 14.5c. NTA has also marched forward to 18.52c, thanks to further buy-backs and movement in the underlying NTA.

Controversially has management changed its investment guidelines to allow it be 100% invested in one security or manager. I read this as meaning APW could be fully invested in other AIMS securities. Management has stated previously it intends (and has done) to invest in other AIMS securities. Some people despise this given the potential conflict of interest it creates. Judging by the strengthened share price, it seems that on-balance the market seems to be fairly comfortable with this. As previously stated I am little more indifferent to this: I can see both sides of the argument.

I have gradually sold down my position completely, although regrettably less than the current price. I took the view - possibly incorrectly - the price may never reach NTA. I tend to find with these types of situations you need to be really cheap and sell cheap. Please don't take that as gospel, and clearly I was premature in this case. My original investment case was buying at ~50% discount to NTA and the view the NTA should grow over time. The discount has closed (but not fully) and the NTA has grown, so the investment case has worked out. Personally I'd be happy to buy back-in at cheaper prices.

Kristian

Disclosure: no position in APW

Australian Foundation Investment Company Ltd Convertible Notes (AFI, AFIG)

Happy New Year, 

Please click here for last post on AFIG. 

Here's a quick recap on how AFIG works: 

• Pay a fixed coupon of $6.25
• Current price is $117.49
• Current yield therefore 5.3% p.a. 
• Face value $100
• Maturity 28/2/17 (mature for $100)
• Investors can convert into ordinary AFI shares before maturity at a rate of $100/$5.09 = 19.6 AFI shares 

At the time of my last review (May, 2013), the AFI share price was $5.72. It is now $6.08. So what this means is the conversion value of AFIG to AFI shares are currently worth 19.6 * $6.08 = $119.17; a small 1.4% premium to the current AFIG price. 

The biggest risk, I think, is the AFI share price sags and AFIG shareholders basically lose $17.49 in capital value over the next few years until maturity. AFI is a very conservative listed investment company and is a loose proxy for the overall share market. Of course the stock market could go down over the next few years, however what I like is the limited downside in these notes. 

The flip-side of course is full upside exposure to AFI. That makes AFIG an asymmetric bet and an interesting vehicle for people looking to bet the market is going up over the next few years but wanting to remove some downside exposure. 

I'm personally chasing more alpha in my portfolio, however I can still see the case for AFIG in cash/fixed interest portfolios. 

Kristian 

Disclosure: no position in AFI or AFIG

Thank-you

Just a short note to say thank-you to the various people who have reached out to me over the year to discuss ideas and strategy and provide feedback. This has helped me immensely, and I can't thank enough both the many professional and private investors who give me their time and I hope in some way I have helped people too. 

Have a great festive season. 

Thanks a lot. 

Kristian 

Third Link Growth Fund

The team at Harness Asset Management is proud to announce that we have joined the stable of fund managers responsible for looking after capital in the Third Link Growth Fund founded by market veteran Chris Cuffe. 

Member fund managers surrender their fees which, are allocated to a selection of children's charities. 

More info at http://thirdlink.com.au

What's happened to takeover arbitrages?

Getting straight to the point, it just doesn't seem that trading takeover arbitrages makes money these days. If anything, the way to make money from takeovers is to short the takeover target, although I certainly do not advocate or practise that strategy. For me, the most profitable and stress avoiding thing to do is just walk away and look for easier ways to make money. 

Before I go on, if you are unfamiliar with the term 'takeover arbitrage', it means buying the takeover target after the takeover has been announced. The ideal takeover is a binding, all-cash offer as it theoretically reduces risk, and leaves upside exposure should a higher bid(s) come along. 

The problem however is that bids can and do fall over and the downside can be horrible, especially compared to the upside. To use the three most common words in finance, there is often no 'margin of safety'. 

There are two reasons why I find it hard to get excited about takeovers these days: 1. many are 'indicative, conditional and non-binding' and 2. plenty of takeovers are just dodgy. 

Treasury Wine Estates (TWE) had not one but two conditional offers and still a deal could not be finalised:

Graincorp still hasn't recovered after the government knocked back the takeover: 

The recent collapse of the Reef Casino (RCT) was just plain fishy and regardless of what the actual truth is, the takeover arbitrageurs got a spanking: 

The mining sector is littered with failed takeover attempts, despite often superficially valid takeover bids on the table. 

Warrnambool Cheese and Butter (WCB) has been the only (that I can think of) truly success takeover arbitrage story from the past few years: 

I haven't traded a takeover for well over two years now, and apart from the very occasional sitting duck that has lots of embedded value, I can't see me trading too many in the future either. Please contact me if you disagree! 

Kristian 

Disclosure: no position in any of the above names

AIMS Property Securities Fund (APW)

I last wrote about APW back in May. Back then, the unit price was 10c and the NTA 15c. Now, the unit price is 11.5c and the NTA 18.1c. Prima facie, the unit price performance has been a bit of a yawn, however a 15% appreciation in a market that has been increasingly on the nose (market was down over 2% today (1 December) is actually pretty good.

I think the price could appreciate more (and has been higher - please note I have previously sold some stock at higher levels). Certainly there have been sellers of the stock lately, however if management can keep etching out NTA growth the unit price will invariably start moving again. The stock is trading at a big discount to NTA and has lots of cash so the margin of safety is high in my opinion, so for me it's justified holding on looking for more gains. 

Kristian

Disclosure: own APW

Australasian Wealth Investments (AWI)

I noted today that Andrew Barnes resigned as a Director of AWI. Mr Barnes was Chairman of AWI when the company bought van Eyk Research, which subsequently went bust. It is very rare for management to admit to mistakes, so it is commendable that Mr. Barnes has chosen to do so publicly. 

Kristian 

Disclosure: no position in AWI