Friday, June 30, 2017

Financial Review - June, 2017

June was another good month for the portfolio with small gains across the board producing a 2.07 percent increase in net assets.

For the year, the portfolio is up 10.10%. The adjusted change from when I retired in September 2013 is a 17.12% increase. Hong Kong liquidity stands at 28.0 months of estimated outgoings, well down on January's 38.6 months due to new investments + a transfer to New Zealand but ahead of last month's after I sold some investments.

Here are the details:

1. my Hong Kong equities increased. I sold my shares in COSCO Ports (HK:1199) and a very small position in China New Economy Fund (HK:80). I reinvested some of the proceeds in Kowloon Development (HK:34) which offers a higher yield (around 7% on cost) and a significant discount to NAV which may or may not improve once legal uncertainty over a property development project in Macau is resolved. While I booked a profit on COSCO Ports, the company has been a serial underperformer which has failed to meet expectations either in terms of growth or dividend levels. The Fund was ditched at a small loss after it appeared in David Webb's list of "50 stocks not to own". This is a lesson in not doing sufficient due diligence - at the time I invested, NAV was above HK$0.80 and the shares were trading ago around HK$0.24. I did check the values of the listed shares in the fund's portfolio to ensure that their values had not fallen significantly but I did not look into the merits of those shares individually. As it turns out a significant number of the Fund's investments were also on the list and plunged spectacularly wiping out a significant amount of investor value;

2. my AU/NZ equities rose slightly. I purchased additional shares in Automative Holdings (ASX: AHG), believing the market had over-reacted to a slowdown in Australian car sales + potential changes to the way car's are finance in Australia. My expected yield on purchase price is above 6%; equity ETFs were up slightly (India, Hong Kong and China) in line with the local markets;

4. my position in silver fell;

5. all tenants are paying on time and all properties are let;

6. the AUD and NZD were up against the HKD/USD;

7. my position in bonds remains small but improved this month when I purchased some 1 year notes issued by part of the Hainan Airlines group using a margin facility - this is a carry trade.

8. expenses were low with no travelling and no other non-regular domestic bills incurred;

My HK cash position rose during the month due to sales of HK equities mentioned above. I currently hold 28.0 months of expenses in HKD cash or equivalents (down from 38.6 months on 1 January).

I have revamped my spreadsheets to capture all debt (previously some accounts were entered on a net basis). Total household gearing ((debt+accruals)/assets) is 9.28% of total assets. Property prices are as at 1 January, 2017, so this overstates the gearing ratio.

I would like to make some additional investments but am struggling to find good value in the markets I follow. With expectations of further rises in interest rates muted, I was tempted by the carry trade, and purchased the Hainan Airlines notes using a margin facility.

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