Weiss Korea Opportunity Fund Ltd.

-1.00 (-0.56%)
Share Name Share Symbol Market Type Share ISIN Share Description
Weiss Korea Opportunity Fund Ltd. LSE:WKOF London Ordinary Share GG00B933LL68 ORD NPV
  Price Change % Change Share Price Shares Traded Last Trade
  -1.00 -0.56% 179.00 14,535 15:41:26
Bid Price Offer Price High Price Low Price Open Price
175.00 183.00 180.00 179.00 180.00
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Trust,ex Ed,religious,charty 8.34 1.79 2.60 60.00 124.06
Last Trade Time Trade Type Trade Size Trade Price Currency
16:24:06 O 375 175.00 GBX

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2023-05-31 15:24:07175.00375656.25O
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Posted at 22/7/2022 21:45 by loganair
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.

Posted at 19/7/2022 11:15 by davebowler
Name NAV per share NAV DATE
(Pence Per

Weiss Korea Opportunity Fund 184.91 18th July 2022

Posted at 27/4/2022 09:54 by davebowler
How to get a 50% discount on ‘overlooked217; Korean stocks
By Michelle McGagh 25 Apr, 2022
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).

Posted at 23/2/2022 16:14 by davebowler
(Pence Per

Weiss Korea Opportunity Fund 214.91 22nd February 2022

Posted at 27/1/2022 13:32 by davebowler
Publication of Net Asset Value ("NAV")
Date of Release 26th January 2022

Name NAV per share ISIN NAV DATE
(Pence Per

Weiss Korea Opportunity Fund 216.77 GG00B933LL68 25th January 2022

Posted at 01/8/2021 16:44 by davebowler
Posted at 26/4/2021 16:39 by davebowler
Net Asset Value ("NAV")
Date of Release 21st April 2021

Name NAV per share ISIN NAV DATE
(Pence Per

Weiss Korea Opportunity Fund 281.26 GG00B933LL68 20th April 2021

Posted at 26/3/2021 09:23 by davebowler
Name NAV per share ISIN NAV DATE
(Pence Per

Weiss Korea Opportunity Fund 259.34 GG00B933LL68 23rd March 2021

Posted at 18/2/2021 09:46 by davebowler
(Pence Per

Weiss Korea Opportunity Fund 296.53 NAV 16th February 2021

Posted at 25/1/2021 11:41 by davebowler
Name NAV per share ISIN NAV DATE
(Pence Per

Weiss Korea Opportunity Fund 274.55 GG00B933LL68 19th January 2021

Weiss Korea Opportunity share price data is direct from the London Stock Exchange
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