Share buybacks offer a saving grace for doleful investor trusts

Friday 20th July 2001

By Peter V O'Brien

New Zealand investors in overseas-based investment trusts and companies listed on the Stock Exchange had relatively small returns in capital gain terms over the past year.

Price for share/units of six selected funds are in the table. Prices at January 30 and July 1, 2000 are included because they coincided with the last two occasions when The National Business Review had a six-monthly review of the sector.

Stocks in the table are only a selection of the 19 currently listed on the New Zealand Stock Exchange, because it was impractical to include the lot.

Those shown cover a range of investments types, related to the markets in which they specialise.

Recent reports from the funds give a good picture of what happened in a range of markets over the past year, particularly since the funds have staggered interim/final balance dates.

The latest detailed report came from Templeton Emerging Markets Investment, being issued on July 4 for the year ended April 30.

Chairman Nicholas Brady (the Honourable Nicholas F Brady for those who prefer UK-type formality) said the past year was a difficult one for emerging markets.

A number of negative factors affected Templeton, including concern about the impact of the slowdown in the US economy.

Emerging markets were also subject to the continuing fall in the price of "once highly-rated" technology companies which had been a feature of developed markets in the year.

Templeton was one of many funds to buy back shares in the past year, which probably cushioned the share-price fall because buybacks increase net asset value.

Fund directors and executives have complained for some time about substantial discounts between share prices and net asset value, and several funds had buybacks in the past 12 months to narrow the gap.

Templeton's definition of "emerging markets" seemed wide, because the portfolio included stocks incorporated and listed in Hong Kong and Singapore and the third-biggest holding was Cheung Kong Holidays, a Hong Kong-based property development company which has holdings in wholesale businesses, import and export, shipping terminal operations, electricity generation, hotels and manufacturing.

An emerging markets fund has to put many political and economic matters into its analytical mix when deciding portfolio composition.

A report and portfolio review from Templeton manager Mark Mobius referred to political developments in Indonesia, Thailand, the Philippines, Hong Kong, Poland, Hungary, Russia, Mexico, Argentina, Turkey and Brazil.

It is worth noting the regular references to corruption or alleged corruption in Dr Mobius' world tour of countries and political systems.

There was more to investment strategies in such places than merely assessing the growth potential of specific stocks.

Templeton had investments in 31 countries at April 30, ranging across Europe, Africa, Asia, Southeast Asia and Central and South America, including notorious trouble spots.

By contrast, The Fleming Overseas Investment Trust had eight of its 10 biggest individual investments in US companies and the other two in French groups,

In geographic terms 58.8% of the fund's assets were in North America, 21.2% in continental Europe, 8.6% in Japan, 3% in "other Pacific," 2.9% in the UK and the rest split between near cash assets, liquidity (cash) and emerging markets.

The investment mix was rather different from Templeton's but sentiments in the manager's report were similar: "The current environment at February 23 is an extremely difficult one.

"Although we expect interest rates around the world to be cut, we continue to be concerned about the outlook for corporate profits.

"We face a daily barrage of companies announcing disappointing results and downwards revisions to growth expectations: it is difficult for stock valuations to appreciate in this environment."

Bankers Investment Trust, which had 55.5% of its investments in UK stocks in the UK at April 30, 19.3% in Europe and 13.6% in North America, described the six months ended April as a difficult period for world equity markets.

An "abrupt slowdown" in the US economy, a squeeze on profitability and another de-rating of new-economy stocks affected equity markets.

Bankers Investment Trust's share price received support from a buyback of 10.4% of the capital which was said to have "enhanced net assets per share by 4.1p equivalent."

Shareholders in all the overseas-based funds would probably prefer to see share prices improve as a result of profit performance rather than the somewhat artificial technique of share buybacks.

SELECTED FUNDS' SHARE PRICES (NZc)
Company/fund	July 16 2001	Jan 30	July 7 2000	% change July 2000 July 16, 20

Bankers Inv Trust	1105	1100	1035	+6.8
FCI Trust	832	930	875	-4.9
Fleming Overseas	1875	2016	2080	-9.9
Henderson Far East	425	385	370	+14.7
Henderson TR Pacific	250	300	360	-30.6
Templeton Emer Mkt	367	400	415	-11.6

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