Tuesday, July 05, 2011

Some small portfolio additions

Yesterday I made some small additions to the private portfolio. Whether this proves to be an exercise in bottom fishing or catching the falling knife is a question that I will only be able to answer with hindsight. Here are the details:

1. Russia ETF (HK:2831): I paid HK$39.50 for some additional units. This compares with my original purchase price of HK$19.12. Average purchase price is now HK$20.32. Selling on a projected 2011 PE of around 6x, Russia looks cheap;

2. Anhui Expressway (HK: 995): toll road operators have taken a pounding as targets of the PRC government's attempts to transfer the cost of managing inflation (at least partly created by PRC government policy) onto businesses. I think this is overdone and, with a projected yield of more than 4%, the shares offer reasonable value. I paid HK$6.45 for some additional shares. My original purchase price was HK$4.33 and my average purchase price is now HK$4.57;

3. Sino Oil & Gas (HK:702): this has been one of my more disappointing investments with the shares trading well down on my original purchase price of HK$0.52. However, with gas now flowing risk associated with the company's projects should be reducing. The additional shares cost HK$0.43 and the average purchase price is HK$0.49;

4. China VTM Mining (HK:893): this has been another disappointing investment. However, I have seen nothing to indicate that the company's fundamentals have changed. The additional shares cost HK$3.01 which compares to an original purchase price of HK$3.73. Average purchase price is now HK$3.71.

Prices include transaction costs and ignore the effect of dividends received.

7 comments:

Andy said...

How do you account for the dizzying P/E ratio of 702?

traineeinvestor said...

Hi Andy

Fair question. Sino Oil & Gas is only just begining to ramp up its gas production (coal bed methane). At this stage of its devlopment cycle, the historical PE ratio, cash flow etc is not that meaningful because the numbers will (I hope) change dramatically over the next few years. This obviously makes the company a higher risk proposition than fully developed operators.

You can read more about the company here: http://www.sino-oilgas.hk/html/en/newsmain.php#

One thing I do not like about the company is their habit of rasing money through heavily discounted placements. Most recently to Och-Ziff in October 2010 at HK$0.45 and in December to Ping An at the same price. These were very heavy discounts to the prevailing market price and, IMHO, not in the interests of shareholders who got diluted as a result. A rights issue would have been much better.

Cheers
traineeinvestor

Andy said...

Thanks from another trainee.

Bill said...

Regarding the Russian ETF (2831) - I'm a little surprised a cautious fellow like you is putting money into a synthetic ETF that consists of a mixture of swaps and collateral. The factsheet is a little misleading as it show the 10 largest index constituents but the "Additional information on invested assets" shows the actual 10 largest holdings which include Siemans, BASF and Apple - not a Russian company in sight.

http://www.lyxoretf.com.hk/fileadmin/user_upload/ETF/HK/Holdings/EN/2011_05_RUS_ENG.pdf

To me, this looks more like a "minibond", with associated counterparty, risk than an "Index Fund". The same also applies to the db-x trackers ETFs listed in HK - being entirely synthetic is why the SFC insist that the name starts with "X"

traineeinvestor said...

Hi Bill

Thanks for the comments. I'm aware of the credit risk element involved with index tracking funds. Yes, the risk is higher than with a fund which holds the underlying shares but, given that the issuers and counterparties are either banks or wholly owned subsidiaries of banks, I am not unduely worried. Unlike Lehman, they are subject to reasonably stringent capital controls which make a financial collapse less likely (but not impossible).

Also, there is a 10% counterparty risk limit and the swap is confined to the relevant index. In the case of the Russia ETF, unless I am reading the fund documens wrong, the balance of the assets are actual underlying shares: http://www.lyxoretf.com.hk/fileadmin/user_upload/ETF/HK/Holdings/EN/2011_05_RUS_ENG.pdf

The risk is there, but it is not that large and it is one that I can live with.

I was aware that the Russia ETF could invest in non-Russian companies that had a sufficient nexus with Russia, but had not checked the extent of the non-Russian holdings. Having looked at the top 10 list (as you point out, none are Russian companies), this is not what I thought I was investing in and needs a rethink.

Cheers
traineeinvestor

Bill said...

Ok, just wondered. I almost bought a Vietnam ETF a while ago but couldn't understand how it worked and after reading below articles I gave up on the idea - they may well be very good investments but I only buy things that I can easily explain to my mother.

http://ftalphaville.ft.com/blog/2011/03/23/524516/etfs-are-proving-not-so-tradeable-during-crises/

http://ftalphaville.ft.com/blog/2009/11/02/80741/synthetic-etf-attack/

traineeinvestor said...

Bill

The ETFs are all a bit different and the synthetic ones do carry higher risks than a conventional ETF/fund. I just don't think that the risks are as big as some people claim in all cases. The extent of the risks appears to vary from case to case, so doing the homework is a must - something I didn't do this time around :-(

I wouldn't touch an ETF that was 100% synthetic and relied on a single non-bank counterparty - but I haven't seen one of those offered in HK yet.....