It is all about icapital.biz Berhad (ICAP, 5108) (Part 1)

I always encourage my family, relatives and friends start to invest as early as possible. However, I use to advise them to do their own research on the particular investment they would like to involve, and I do not like to recommend which company is good to buy. It is because a particular company could be sound good to me, it might not be suitable to others due to their different risk profile, investment objective and needs.

However, there is an exception that I strongly recommend, i.e. iCapital.biz Berhad (ICAP, 5108) which is currently listed at the main board of Bursa Malaysia. What is so special in ICAP? Let me 1st introduce some of its background and history, and most importantly its fund manager, Tan Teng Boo.

I first came through to this fund when I was working at an Investment Bank, as I was researching the recent new Initial Public Offering ("IPO") in Bursa Malaysia at the moment. So I found ICAP that was going to be listed at October 2005. It listed as a closed-end fund at the main board of Bursa Malaysia since then and its IPO issue price was RM1 per share with 140 million units. So the fund size was RM140 million at the initiation period of the fund. I first invested into ICAP was the 1st day of its listing at Bursa Malaysia at a market price of RM1 and am currently still accumulating its shares whenever its net asset value ("NAV") is higher than its market price.

There were 3 points attracting me to buy the fund at the time it was first listed and I will list the points 1 by 1 in detail. The 1st reason was the fund's aim to increase its NAV from RM140 million to RM280 million by year 2010, so it targeted that the fund manager will double the fund size within 5 years. In order to double the fund size in 5 years, it means that it would need a compounded annual growth rate ("CAGR") of 14.87% (= 2^(1/5) - 1).

Though a CAGR of roughly 15% is not the most impressive return that I have ever met, I would still consider it is a very good return to a moderate person. I believed most of the fund in Malaysia does not possess this kind of return. Indeed, ICAP was able to achieve to reach its target fund size at peak RM300 million at December 2007. However, the subsequent market crash sent the fund's NAV to a lower point at RM1.81 according to the latest weekly announcement at Bursa Malaysia yesterday (so its latest fund size would be now = RM1.81 * 140 mil units = RM253.4 mil). So it has 1 more year to go to achieve its target.

How to achieve a CAGR of 15%? This is the 2nd point I get from the fund manager of ICAP, Tan Teng Boo ("TTB"). Basically, when investing into ICAP, one is effectively employing TTB to manage fund for you. Same like Warren Buffett who runs Berkshire Hathaway, it is a one-man show. Let me share my experience of meeting with TTB. I remembered that before I first subscribe ICAP shares at Oct 2005, I was trying to 'subscribe' an analyst job from Capital Dynamics, the fund managing company of ICAP.

It was a group interview and the interviewer was the chief executive officer ("CEO") of Capital Dynamics. Of course, the CEO was TTB. TTB asked the candidates (including me) at the group interview a question that "What would be crude oil price in the next few years?". Maybe most of us cannot get a right answer (too sad that I was incapable to answer the question correctly, I failed to be shortlisted..>_<), so TTB told his view upon the crude oil price that it would be move along with the demand. Although at the moment the crude oil price was barely less than USD60 per barrel at year 2005, TTB predicted that the crude oil price can shoot up to USD100 to USD140 per barrel at next 3 to 4 years. As he mentioned that nowadays most of the developing countries are progressing fine, especially the 2 great giants China and India. So the world economy is gradually decoupling from the US economy and thus the economic growth engines are diversifying more onto other countries. Without having economic slowdown on those developing countries, there is no reason for the limited crude oil not to increase in price, it is just a matter of time.

Though looking back at what he had predicted at year 2005 on the crude oil price of which started to shot up to a peak at USD140, it seems that TTB was acting like a prophet. Actually it is his investment philosophy that making him right all the times and bringing an excellent result for the fund. TTB is a follower of the legendary father of Value Investing Benjamin Graham, just like most other successful investors such as Warren Buffet. However, TTB is not just merely a value investor that searching deep into companies, he has his own style of investing strategy, i.e. economic analysis + company analysis (Top Down Approach).

TTB called this top-down value investing philosophy as "Intelligently Eclectic". As TTB differentiate his own "Intelligently Eclectic" value investing philosophy from the conventional value investing. He first started to analyse at a bigger extend field of macroeconomics such as economies and stock markets, interest and inflation rates, bonds and commodity markets, market psychology, in addition to the local environment before arriving his advice and recommendations to a particular company or its stocks. Nonetheless, he still strictly follow the value investing approach on the stock selection by comparing divergences between market prices and the underlying intrinsic values of companies in order to build in a margin of safety and achieve superior performance in the long run.

Maybe I should talk more about TTB and his fund management company Capital Dynamics. TTB is not only managing fund, but he also built up his own investment advising magazine, the "i Capital". Inside this magazine, TTB has written many articles about his view on politics, economy and company analysis. And there are several sections inside this magazine showing portfolio simulations that managed by TTB, and these portfolio simulations were showing impressive return. Due to some subscribers were making ton of money by following his portfolio simulations, they strongly requested TTB to setup a fund that allowed magazine subscribers, who are mostly retailer investors, to invest accordingly. Thus this is the history how ICAP was setup at the first place.

The 3rd reason I invested into ICAP at listing as I thought ICAP was launched at a right timing. As there were used to be only 2 stocks listed under the closed-end fund section - ICAP and AMANMFB. Amanah Millenia Fund Berhad ("AMANMFB") was listed as a closed-end fund at wrong time at year 1997 before the KLCI index was crashed to a low during the Great Asian Financial Crisis at year 1998. It was a stupid decision to launch AMANMFB (just like many of the existing conventional open-end unit trust fund always launched at a wrong timing) at an all time high as the KLCI index was traded at a P/E of 20 times. So coming through the Great Asian Financial Crisis, the performance of AMANMFB was very lousy and decided to close shop at year 2007. At the time the fund was liquidated after lasting 10 years, it only created an accumulated growth of 20% to its shareholders. So the CAGR of AMANMFB in last 10 year period from 1997 to 2007 was only 1.84% (=1.2^(1/10)-1)! If I was the shareholder of AMANMFB, I would rather put the money into the bank that could earn me a fixed-deposit rate that higher than 1.84% every year.

Whereby ICAP was listed at a mild bear market of which the KLCI index was traded at a P/E of 12 times at year 2005. It was because the investment strategy that the fund manager of ICAP employed was value investing. By launching the fund at a right time, the fund was able to use excessive cash to shop at the "Bursa" complex and acquiring shares at a bargain price. This reminds me what Warren Buffet has mentioned that "Be fearful when others are greedy, and be greedy when others are fearful". By contrasting the poor performance of AMANMFB with the bright side of ICAP, it boosted more confident for me to invest into ICAP.

(To be continued)