Weiss Korea Opportunity Share Discussion Threads

[davebowler] 17/4/2024 04:10

hTTps://citywire.com/investment-trust-insider/news/the-top-10-asian-stocks-the-world-s-best-investors-are-buying/a2440451?re=119391&ea=252901&utm_source=

[davebowler] 04/4/2024 12:54

Positive mention of how cheap shares are in Korea at about 18 mins in...

[davebowler] 25/3/2024 13:59

PORTFOLIO
Portfolio Statistics (as of 29 Feb 2024)

Portfolio Discount - 45.2%
Average Trailing 12-Month P/E Ratio of Preference Shares Held- 5.4x
Trailing Net Dividend Yield of Preference Shares Held -2.7%
Number of Positions - 34
Percentage of NAV Invested in Preference Shares 89.0%
Net Cash Balance - 4.3%


Top 10 Holdings - (as of 29 Feb 2024)
Hyundai Motor Company, 2nd Prf. 15%
LG Electronics Inc., Prf. 9%
Hanwha Corporation 3rd Prf. 7%
LG Chem Ltd., Prf. 7%
Amorepacific Corp., Prf. 6%
Mirae Asset Daewoo Co., Ltd., 2nd Prf. 5%
CJ CheilJedang Corp, Prf. 5%
Samsung Kodex 200 ETF 5%
Hyundai Motor Company, 3rd Prf. 4%
CJ Corporation, 1st Prf. 3%
Top 10 Holdings 66%


The ‘Portfolio Discount’ in the Portfolio Statistics table represents the discount of WKOF’s actual NAV to the value of what the NAV would be if WKOF held the respective common shares of issuers rather than preference shares on a one-to-one basis.

Korean preference shares trading at wider discounts are most often less liquid than those at narrower discounts. The Investment Manager believes that it is in the interest of shareholders for WKOF to hold less liquid shares if they increase the expected return of the portfolio. The Investment Manager plans to rebalance WKOF’s portfolio, over time, toward preference shares trading at larger discounts, consistent with its view on the most attractive portfolio.

[davebowler] 25/3/2024 13:56

Weiss Korea Opportunity Fund Ltd. NAV 183.72p at 22nd March 2024

[davebowler] 25/3/2024 13:55

QD explainer – All you need to know about Korean preference shares
30 October 2023QuotedDataQDviewAsiaInvestment CompaniesJames Carthew
Tongiljeong pavilion
Five countries dominate the MSCI AC Asia Pacific ex Japan Index – China, Australia, India, Taiwan, and South Korea – collectively, accounting for over 85% of the market cap of that index. However, most of investors’ focus seems to be on China and India, Australia is usually regarded as a resource play, Taiwan’s market is usually represented in portfolios by Taiwan Semiconductor (the largest stock in the index). It is a similar story in South Korea, where Samsung Electronics dominates (accounting for over 30% of the MSCI Korea Index). Korea’s other listed companies attract less attention, and that may be one of the reasons why they are relatively cheap. On a forward price/earnings basis, MSCI Korea is trading on a modest discount to the MSCI Emerging Markets Index, but on a price/book basis, the discount is quite pronounced (1.0x to MSCI EM’s 1.6x as at end September 2023).

There are ways of accessing Korean companies even more cheaply. Preference shares form part of the equity capital of many South Korean companies. There is a difference between preference shares as we generally understand them in the UK (where the preference shares usually rank ahead of ordinary shares in their claim to dividends and capital) and preference shares in Korea where they generally rank alongside the common shares (ordinary shares) issued by Korean companies and are entitled to receive the same dividends as the common shares but tend to have no voting rights.

Korean preference shares often trade at a substantial discount to equivalent common shares. Consequently, an investment in preference shares may offer access to South Korean companies at price/earnings and price/book ratios that are typically lower, and dividend yields that are typically higher than an investment in their common shares.

But, apart from the valuation opportunity, why would you want exposure to South Korea? Well in GDP terms it ranks 13th globally, not that many rungs down from the UK. It is well known for its record of technological and industrial innovation and has some of the leading players in sectors such as electronics, batteries, automobiles, ship building and steel. This is underpinned by heavy investment in research and development. It can also boast a burgeoning entertainment industry, with Oscar-winning Korean films and the K-pop phenomenon.

There are two structural issues that weigh on the stock market. First is an official reluctance to relax foreign exchange controls completely. This is the principal reason why, despite the relative wealth of its citizens, South Korea is still categorised as an emerging rather than a developed market by MSCI, which is problematic as that deters many investors. MSCI considered whether to upgrade Korea’s status earlier this year and opted not to make the move yet. It wants to monitor the effects of reforms that the government enacted designed to improve access to the Korean market.

Second, is a record of poor corporate governance, which stems in part from the historic dominance of family-controlled chaebols – led by Samsung, SK and Hyundai. Many Korean companies have inefficient, over-capitalised balance sheets (hence the low price/book ratio), low dividend pay-out ratios and cross-shareholdings (which tend to be valued at book rather than market value).

Improved corporate governance would help positively re-rate the Korean market and narrow its valuation discount versus other global markets. The government has been making positive changes. A Stewardship Code was introduced at the end of 2016, and this has been the foundation for reforms, with new measures still being introduced that strengthen the rights of minority shareholders. Some companies are taking action – higher dividend pay-out ratios are evidence of this – which is particularly beneficial for income investors holding discounted preference shares.

For those that can access the Korean preference share market, we have identified 123 preference share issues. Of those, at the end of September 2023, 74 preference shares were trading at a discount to the price of the equivalent common shares. The median of those discounted preference shares was trading at a 40% discount.



As you can see from Figure 1, the number of preference shares trading at a discount had been falling but has picked up again in recent weak markets. The median discount number has not changed much for some years. Individual issuers seem content to retain the common share/preference share structure of their equity base – and why not, if they can issue preference shares and thereby get cheaper funding? There is some discount volatility, however, and so an active approach to investing in Korean preference shares can add value.

For example, Samsung Electronic’s preference share issue – which is the largest and most liquid – was trading on a sub 9% discount at the start of the year and that had widened to over 20% by end September. The price of the common shares was up about 24% over that period, but the price of the preference shares was only up by about 8%. The yield on the preference shares is higher – about 2.6% to the common share’s 2.1% – but this is not enough to compensate for the discount widening.

By contrast, the discount on LG Chem’s preference share issue narrowed from about 54% to about 37%. The preference shares rose in value by about 12% while the common shares fell in value by about 17%. As the preference share yield is about 3.2% to the common share’s 2.0%, they were definitely the right part of the capital structure to be holding.

[davebowler] 25/3/2024 13:53

Masterclass -

[davebowler] 30/11/2023 15:04

29 Nov NAV 164.47.

[davebowler] 11/9/2023 10:01

8/9 NAV 163.93

[davebowler] 30/1/2023 15:10

Weiss Korea Opportunity Fund NAV 197.23 pence 27th January 2023

[davebowler] 09/1/2023 15:24

NAV
Weiss Korea Opportunity Fund 190.82 GG00B933LL68 09th January 2023
Ltd.

[loganair] 22/7/2022 21:45

An investment trust offering a double discount on South Korean stocks - 22nd July 2022


South Korea occupies an unusual place in global markets. It’s a wealthy, innovative economy that’s home to major international groups – such as Samsung, LG and Hyundai – that have strong positions in key industries. Yet the market is consistently cheap in nominal terms. The MSCI Korea index trades on 7.8 times forecast earnings, against 14.5 for the MSCI World.

There are several reasons why it’s on such a low valuation. Corporate governance remains an issue: family-controlled conglomerates (chaebol) dominate the economy and many have not always treated minority shareholders fairly. The stockmarket is still classed as emerging by MSCI – whose developed and emerging indices have a huge influence on how much gets invested where – due to trading restrictions. Many big firms operate in cyclical industries, and cyclical stocks trade at a discount to defensive stocks. And in the past, the presence of nuclear-armed North Korea just across the border stood out as another risk, but maybe in today’s world that’s a less idiosyncratic peril than it used to be.

However, governance is improving and promotion to developed status must eventually happen, so it seems plausible Korea will some day trade at a higher valuation. The Weiss Korea Opportunity Fund (Aim: WKOF) offers an unusual way to back that idea.

Buying at a discount:

WKOF invests solely in Korean preference shares (prefs). These aren’t prefs in the standard UK sense of shares that pay a fixed dividend: in Korea, prefs are typically non-voting shares with a variable dividend that’s usually very slightly higher than the ordinary stock, but otherwise represent a standard equity interest. Prefs were typically issued around three decades ago when founding families wanted to raise more capital without giving up control. There are around 123 issues outstanding, says WKOF, ranging from Samsung Electronics to obscure firms that are best avoided.

Buying into non-voting shares may seem riskier, but in Korea a founding family typically holds enough of the voting rights to have control, so an investor in prefs isn’t at an obvious disadvantage to minority investors in common shares. In the past, investors in prefs have been treated equally to those in common shares, says Mark Lewand, head of investor relations at Weiss. Hence Korean prefs shouldn’t necessarily trade at big discounts to common stock.

Despite that, many do, which creates two opportunities. First, Korean blue chips already trade cheaper than comparable global peers. Through prefs, investors can buy in at a double discount, says Jack Hsiao, WKOF’s manager. Second, discounts change in response to corporate restructuring and better governance. A decade ago, Samsung Electronics’ prefs used to trade at a 40%-50% discount, but that has narrowed to around 10%. WKOF has rotated out of Samsung into other blue-chip prefs with wider discounts, such as Hyundai Motor, where such catalysts have yet to play out.

WKOF has returned 123% in net asset value (NAV) terms since its inception in 2013, against 50% for the MSCI Korea. Dividends are paid annually, with a trailing yield of 3.5% on Monday’s close of 181p. The expense ratio is 1.8%, of which 1.5% is the management fee. A discount control mechanism keeps the discount fairly tight (2.2% on Monday). However, this is a small fund (assets of £127m) and the bid/offer spread can widen in these market conditions (now around 5%).

WKOF is a specialised single-country fund and not for every portfolio. Still, it looks cheap. The discount of its prefs portfolio relative to equivalent common shares is now 52%, as wide as it’s been since 2013, putting it on less than five times earnings. If you expect Korea to rerate upwards eventually, it should be one to hold and a good time to start buying.

[davebowler] 19/7/2022 11:15

Name NAV per share NAV DATE
(Pence Per
Share)

Weiss Korea Opportunity Fund 184.91 18th July 2022

[davebowler] 27/4/2022 09:54

How to get a 50% discount on ‘overlooked217; Korean stocks
By Michelle McGagh 25 Apr, 2022
4
Comments
How to get a 50% discount on ‘overlooked217; Korean stocks
The ‘overlooked217; Korean stock market offers investors the chance to snap up shares in big names like carmaker Hyundai at up to 50% off, and Weiss Korea Opportunities (WKOF) is taking full advantage.

Launched nine years ago, the £150m investment trust, run by Weiss Asset Management in Boston in the US, is not just a specialist single-country fund. It also adds another layer of specialism in only investing in Korean preference shares, or non-voting shares, issued by around 120 companies on the country’s Kospi 200 index.

Mark Lewand, Weiss’ head of investor relations, said preference shares are ‘particularly interesting because they get the same economic benefit as voting shares plus a nominal payment, like a fixed income coupon’.

‘They are economically superior,’ he said.

Chaebol history
Preference shares began to be issued 30 to 40 years ago by large companies controlled by Korean ‘chaebols̵7; – or powerful families – to raise equity without diluting their own voting rights.


The lack of vote means the shares trade at an often-steep discount to the voting shares.

Jack Hsiao, a portfolio manager working on WKOF, said price plays a large part in his stock-picking criteria.

‘The first [of the criteria] is how cheap a particular non-voting share is relative to the voting share,’ he said. ‘There is always a price for everything; even if it is a terrible company, if you can buy a share for 1p, you do it.’

The trust, which has a current yield of 2.4%, also considers the dividend on offer, something which is moving to the forefront of Korean investors’ minds as, like in Japan, government policy has encouraged the return of capital by historically conservative companies that have held high levels of cash.

‘Korea, has in the past, paid low dividends but in the last five years that has changed,’ said Hsiao. ‘The dividend is important because it provides a floor for how cheap shares can get. Plus, you can buy a 2% dividend at a 50% discount and get a 4% yield.’

While Japan is ‘three to five years ahead’ of Korea in terms of stewardship codes and government action, Hsiao said ‘there is a general push by the investment community to see higher payouts’.

‘At companies like Samsung we are seeing aggressive capital returns and that has set the bar for the rest of the market,’ he said.

Swing from Samsung
With a value of $361.5bn, Samsung Electronics is one of the biggest stocks on the Kospi but fell out of the fund’s top 10 holdings about a year ago. A rally in the shares substantially reduced their discount, prompting the managers to switch to other more undervalued shares.

As a result, the 38 positions in the portfolio now stand on an average 52% discount to their voting shares.

But while focused on price, Hsiao said ‘we are not looking to buy unviable or fraudulent companies’, so quality does come into play.

‘A lot of the holdings are multinational companies with good cashflow and good balance sheets,’ he said. ‘It is a testament to the stock selection process that the portfolio of non-voting shares is not underperforming the broader market.’

Hyundai could re-rate too
The fund’s biggest holding, making up 13% of the portfolio, is a well-established name: auto giant Hyundai.

Hsiao said he was excited about the stock because the preference shares were trading on an ‘irrationally wide’ discount nearing 50%, offering a yield of 6%, ‘which is insane for an auto company and a company that still has upside and a healthy balance sheet’.

Hsiao believes the fund is also set to benefit from a change in the law that will directly affect Hyundai and narrow the discount considerably.

In recent years the government has outlawed ‘circular companies’, where the original company invests in shares of another company that then invests in the original company. This includes Hyundai, which owns shares in Kia, that in turn owns shares in a Hyundai subsidiary that owns shares in the main Hyundai group.

‘That has been outlawed by the government and Hyundai did already try to restructure,’ said Hsiao.

However, the effort was thwarted by activist investors Elliott Advisors, which voted against it ‘and caused a shareholder backlash’. The company is due to come to market with a new proposal and the new restructuring should help narrow the discount.

‘We are paid a 6% yield but are invested in a company with a strong balance sheet that has invested in its electric vehicle divisions and there is an upcoming catalyst in one-to-two years of restructuring that could narrow the discount,’ said Hsiao.

Other holdings in the top include chemicals giant LG Chem, cosmetics group Amorepacific Corporation and Hanwha, a conglomerate whose interests stretch from explosives to retail and financial services.

Cheap market
A measure of the portfolio’s cheap valuation is that the shares trade on just over five times their last 12 months of earnings, or profits.

‘There is a bit of underappreciation for the Korean market and when people think of it they do not think of growth or innovation, but it is always in the top five lists of most innovative countries,’ Hsiao said.

‘It has the most patents per capita and we see a lot of new growth companies, especially in electric vehicles and batteries – Korea is producing a third of electric battery supplies. Most people do not realise it but there are a lot of growth and green opportunities here.’

However, in the past year, the trust has broadly tracked its benchmark, the MSCI Korea index lower. The shares have fallen 19% as fears of rising US interest, a strong dollar and more recent concerns of slowing global growth have seen overseas investors cut their weighting to South Korea.

Well backed
In the longer term, the trust has outperformed the index, with total shareholder returns of 52.9% over three years and 61.8% over five years that beat the benchmark’s 19.2% and 28.5% over the same periods.

Despite the recent setback, the trust has avoided falling to a wide discount itself, with the shares closing last week at 3% below net asset value.

Discount hunter City of London owns nearly a quarter of the shares, its interest in buying undervalued investments making it the trust’s biggest investor. Other leading UK investors, with smaller stakes, include Edentree, Ruffer and CG Asset Management, manager of Capital Gearing Trust (CGT).

[davebowler] 23/2/2022 16:14

NAV
(Pence Per
Share)

Weiss Korea Opportunity Fund 214.91 22nd February 2022

[davebowler] 27/1/2022 13:32

Publication of Net Asset Value ("NAV")
Date of Release 26th January 2022


Name NAV per share ISIN NAV DATE
(Pence Per
Share)

Weiss Korea Opportunity Fund 216.77 GG00B933LL68 25th January 2022
Ltd.

[epistrophy] 02/10/2021 12:21

Off topic-ish ... I really enjoyed The Spy Gone North on iplayer. Korean political thriller, based on a true story, about a spy who infiltrated the North in the 1990's.

[dragonsteeth] 02/8/2021 19:30

Thanks for that, it’s certainly stirred up the Buy trades, since June there has been minimal daily activity , I was beginning to wonder if I’d missed something.

[davebowler] 01/8/2021 16:44

htTPs://www.thisismoney.co.uk/money/investing/article-9847077/MIDAS-SHARE-TIPS-Weiss-Korean-Opportunity-Fund-reap-dividends.html

[dragonsteeth] 26/4/2021 17:15

It’s been a nice steady rise since I bought in last month, very much under the radar.

[davebowler] 26/4/2021 16:39

Net Asset Value ("NAV")
Date of Release 21st April 2021


Name NAV per share ISIN NAV DATE
(Pence Per
Share)

Weiss Korea Opportunity Fund 281.26 GG00B933LL68 20th April 2021
Ltd.

[davebowler] 26/3/2021 09:23

Name NAV per share ISIN NAV DATE
(Pence Per
Share)

Weiss Korea Opportunity Fund 259.34 GG00B933LL68 23rd March 2021