EPF/ETF - Poor invesment strategies...

Think9

Think9

Senior Manager - Equity Analytics

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I always had this question. Do the EPF funds get invested in good shares?? and do the department analyst do proper study in stock before buying ??

EPF/ETF are people`s money. I think they have done so much mistakes before and im quite shocked who advice to buy.

i can remember, EPF bought huge qty of SPEN at 220, then 180 level , again 167 , latest 135 . And now its 134.. Why such a poor investments ? I mean we all know SPEN and most of the hotels got a higher PE. I mean just using simple ratios anyone can understand that SPEN is over-valued until it falls to 130-135 levels.. How many additional no.of shares EPF would ve got more no of shares, if they bought at 130-140 levels instead of 180-220 levels..

And mind you, EPF invested on GRAN at 220 levels..

Related articles :

http://www.ft.lk/2011/06/29/epf-active-in-sluggish-bourse/

http://www.ft.lk/2011/05/25/epf-buys-1-m-more-shares-of-spence-hotel-holdings/

http://www.ft.lk/2011/04/21/epf-invests-more-in-aitken-spence/

Last edited by Think9 on Wed Jun 29, 2011 9:16 am; edited 1 time in total (Reason for editing : spellings)

Wed Jun 29, 2011 9:18 am by duke · Wed Jun 29, 2011 9:18 am by duke

I think holding companies should go around a PE ratio of 10 because they're just a holding company. That means it should come around half its current value.

Wed Jun 29, 2011 10:05 am by **Chinwi** · Wed Jun 29, 2011 10:05 am by **Chinwi**

This is a big topic.

The open secret / rumor in the stock market is that the guys who decide what shares to be bought by these funds first collect them in big quantities for their own accounts using the big loans given by friendly banks ( the lenders know there will be no problem).
With the buying interest the prices go up and when the prices reach peak the funds wake-up and buy shares.

If you analyze the history of the shares bought by these fund for past 1-2 year you may see they didn't touch them even when we were buying. All of sudden they come in and buy in big quantities when others sell to get profits.

Wed Jun 29, 2011 10:09 am by Academic · Wed Jun 29, 2011 10:09 am by Academic

duke wrote:I think holding companies should go around a PE ratio of 10 because they're just a holding company. That means it should come around half its current value.

Yes. Largely diversified holdings should be subjected to "Conglomeration Discount" in calculating their fair value. Thus PE should be lower.

Wed Jun 29, 2011 11:11 am by xhora · Wed Jun 29, 2011 11:11 am by xhora

It was proven in a TV political discussion that when last year stock market grown about 90+% return on investments to EPF fund was only about 4% what a waste.

Wed Jun 29, 2011 11:22 am by duke · Wed Jun 29, 2011 11:22 am by duke

Chinwi wrote:This is a big topic.

The open secret / rumor in the stock market is that the guys who decide what shares to be bought by these funds first collect them in big quantities for their own accounts using the big loans given by friendly banks ( the lenders know there will be no problem).
With the buying interest the prices go up and when the prices reach peak the funds wake-up and buy shares.

If you analyze the history of the shares bought by these fund for past 1-2 year you may see they didn't touch them even when we were buying. All of sudden they come in and buy in big quantities when others sell to get profits.

Like what a person named Nimal Perera did.
http://www.ft.lk/2011/05/05/deals-within-deals-only-spark-in-bourse/

May be in civilized countries these things make investigations.

Wed Jun 29, 2011 12:18 pm by Academic · Wed Jun 29, 2011 12:18 pm by Academic

Most of so called High Net-worth Individuals have similar stories some where in their life lines. The CSE can't make attractive for foreigners if rulers do not take steps to punish and stop inside traders and manipulators.

Wed Jun 29, 2011 12:20 pm by econ · Wed Jun 29, 2011 12:20 pm by econ

it seems that those central bank fund managers do not care about public funds like EPF,ETF..

Wed Jun 29, 2011 2:37 pm by Think9 · Wed Jun 29, 2011 2:37 pm by Think9

And this s what Dr.harsha de silva has to say-

http://www.ft.lk/2011/04/01/dr-harsha-de-silva-challenges-central-bank-on-epf%E2%80%99s-investments/

Btw guys check out the crossings today on SPEN and AHUN.. EPF buyin more to avg ?? hehe. probably someone has seen the post.. lol. . ( joke )

TODAY'S CROSSING

Time Crossings

13:37:49 AHUN 299,432 @ 75.00
13:37:20 AHUN 275,905 @ 75.00
12:39:30 AHUN 2,000,000 @ 75.00
12:07:06 SPEN 171,000 @ 133.00
12:06:36 SPEN 237,500 @ 133.00
12:00:53 SPEN 500,000 @ 133.00
11:58:35 SPEN 500,000 @ 133.00
11:44:29 SPEN 500,000 @ 133.00
11:44:19 SPEN 500,000 @ 133.00
11:42:53 SPEN 500,000 @ 133.00
11:42:25 SPEN 250,000 @ 133.00

Wed Jun 29, 2011 2:39 pm by duke · Wed Jun 29, 2011 2:39 pm by duke

xhora wrote:It was proven in a TV political discussion that when last year stock market grown about 90+% return on investments to EPF fund was only about 4% what a waste.

Are the EPF reports available anywhere? I'm also an investor of the fund as most of you.

Wed Jun 29, 2011 2:53 pm by **gamaya** · Wed Jun 29, 2011 2:53 pm by **gamaya**

They bought Gran at 200 laughs at 50.

They can easily buy at lows like this. Even newcomers to CSE have made much more gains than this. I wonder what kind of analysis they do before buying.

Wed Jun 29, 2011 3:01 pm by eeyohan · Wed Jun 29, 2011 3:01 pm by eeyohan

dear Friends EPF and ETF got enough holding power more than 20 y ... they can hold ... don't worry abt it

Wed Jun 29, 2011 3:06 pm by Think9 · Wed Jun 29, 2011 3:06 pm by Think9

safeguarding some of the investors ?? ; ) Im sure it is a factor as well.

talk about GRAN. it hit 260 making it up 20 - 30 rupees per day but CSE didnt band it at all. but now it around 100 - 110 levels which is 150% down. I feel GRAN will come to 70 levels and will again start sky rocketing.

AND IM SURE ! CSE wont band it . never !

Wed Jun 29, 2011 3:16 pm by Think9 · Wed Jun 29, 2011 3:16 pm by Think9

@ eeyohan : I think i ve to teach u how EPF and ETF works until we get retire.. but well........... u knw! i cant waste time..

but just an economy lesson :

when you HOLD.

Hold = saving = economy leakage. When economies is not circulating well, the growth is pretty less. That wats happening in developing countries. so it consumers / gvmnts resposibility to make sure things money get circulated .

example : By the time SPEN reach 300 , I can buy and sell in different levels and gain more than 1000% profits.. and if the gvt has done the investments properly Im sure they would ve developed the country more. At least to cover the huge loss gvt get from water board .lol. but in terms of business, i called it " Poor investment strategies " .

Wed Jun 29, 2011 4:43 pm by aladdin · Wed Jun 29, 2011 4:43 pm by aladdin

Guys i feel all of u are going on a wrong direction. A fund like EPF is not investing on short or medium. Normally they invest looking at the long run such as 5-10 years of profit realization. In that view what above discussed will not be valid. Many think that the decision made by EPF is wrong because majority is in the set of mind of look at the short run.

But one thing is bit suspicious to me. All the time the seller was same to EPF. May be a core incident. But who knows.

I report u decide.

Wed Jun 29, 2011 6:17 pm by Academic · Wed Jun 29, 2011 6:17 pm by Academic

aladdin wrote:Guys i feel all of u are going on a wrong direction. A fund like EPF is not investing on short or medium. Normally they invest looking at the long run such as 5-10 years of profit realization. In that view what above discussed will not be valid. Many think that the decision made by EPF is wrong because majority is in the set of mind of look at the short run.

But one thing is bit suspicious to me. All the time the seller was same to EPF. May be a core incident. But who knows.

I report u decide.

Just because you are going to hold for long why do you pay more?

Suppose you gonna buy a land to hold for 20 years, if you can buy it for X would you pay X+Y and buy?. It is always beneficial to buy at low regardless the time-frame ! No more justifications are needed (common sense), I suppose.

Wed Jun 29, 2011 6:43 pm by wis · Wed Jun 29, 2011 6:43 pm by wis

xhora wrote:It was proven in a TV political discussion that when last year stock market grown about 90+% return on investments to EPF fund was only about 4% what a waste.

Is it really 4%? Anyway not a surprise if it is.

Wed Jun 29, 2011 7:11 pm by Think9 · Wed Jun 29, 2011 7:11 pm by Think9

agree with academic.. it is commonsense ALLADIN..

generally why do a bank giv us a loan?. coz they use it to earn higher by re-investing. Same as for EPF /ETF funds. What they do as holding, they re-invest in order to gain more. And from the gain they get, they can use for the benefit of the country. Im not sayin our EPF and ETF are on a risk, what im saying is y can they invest wisely and do more things.. im pointing the finger on EPF n ETF board.

im sure now the 4% also not there. : D .

Wed Jun 29, 2011 7:51 pm by aladdin · Wed Jun 29, 2011 7:51 pm by aladdin

Academic wrote:

aladdin wrote:Guys i feel all of u are going on a wrong direction. A fund like EPF is not investing on short or medium. Normally they invest looking at the long run such as 5-10 years of profit realization. In that view what above discussed will not be valid. Many think that the decision made by EPF is wrong because majority is in the set of mind of look at the short run.

But one thing is bit suspicious to me. All the time the seller was same to EPF. May be a core incident. But who knows.

I report u decide.

Just because you are going to hold for long why do you pay more?

Suppose you gonna buy a land to hold for 20 years, if you can buy it for X would you pay X+Y and buy?. It is always beneficial to buy at low regardless the time-frame ! No more justifications are needed (common sense), I suppose.

brother as every one else the people who drive that fund also cannot 100% predict the market. I am prety sure that when EPF was buying these shares, those showed a buy signal in all the technical as well as the fundamentals. Unfortunately due to many reasons the price has drop by now. So what i said is, the are not looking at short term. They look very very long term That is the reason they keep on buying mate. Look what will happen in 5-10 years time. I am 100% sure they get more than 100% profit. If they deposit the money in TB's they will end up geting just max 50% for 5 years. That is what i wanted to explain.

Wed Jun 29, 2011 7:55 pm by aladdin · Wed Jun 29, 2011 7:55 pm by aladdin

Think9 wrote:agree with academic.. it is commonsense ALLADIN..

generally why do a bank giv us a loan?. coz they use it to earn higher by re-investing. Same as for EPF /ETF funds. What they do as holding, they re-invest in order to gain more. And from the gain they get, they can use for the benefit of the country. Im not sayin our EPF and ETF are on a risk, what im saying is y can they invest wisely and do more things.. im pointing the finger on EPF n ETF board.

im sure now the 4% also not there. : D .

As i explained in reply to Acadamic, if we look at this in a small scope of a mentality of getting high return in short term, then yes EPF has failed. But think of the broaden scop and potentials of the companies they bought. Then u can see the big picture. But saying so, i said i am but suspicious about the transactions because always (Most of the time) the seller was same. Who knows. Anything is possible in CSE.

Wed Jun 29, 2011 8:13 pm by factFINDER · Wed Jun 29, 2011 8:13 pm by factFINDER

aladdin wrote:Guys i feel all of u are going on a wrong direction. A fund like EPF is not investing on short or medium. Normally they invest looking at the long run such as 5-10 years of profit realization. In that view what above discussed will not be valid. Many think that the decision made by EPF is wrong because majority is in the set of mind of look at the short run.

But one thing is bit suspicious to me. All the time the seller was same to EPF. May be a core incident. But who knows.

I report u decide.

Investment strategy of mutual funds like EPF and the strategies adopted by individual investors both retailers/HNWI can be totally different, followings are among few of many reasons;

1. They (mutual funds like EPF) have large and continuously growing fund base/cash flow (just examine the total fund base of EPF and their annual collection/payment)

2. They have holding power as long as 10-25 years (just examine who are the target buyers of 20-50 yrs bonds/debt securities issued in international markets)

3. They usually sell/buy large quantities (may be 100-500 millions a single transaction) and probably negotiated dealings, not similar to collecting small quantities at the bottom.

It is no surprise that EPF buys SPEN at different price levels 220-180-167-135 ... etc, as when CSE sliding blue-chip stocks become more attractive and those who have sufficient fund and holding power may aggressively enter. (See DIST also has increased its stake from 18% to 22.30% last year.) I guess the main reason behind EPF's move in to SPEN is their investment in Colombo Port Development Project which SPEN holds 30% stake. (see what is the contribution for JKH from SAGT Venture). The strategy may be an utter failure for individual investors due size of allocation and lesser holding power (this can understand by looking at top20 list of SPEN)

I'm not telling that all investment decisions taken by EPF are good. Investment decisions may not always deliver optimal result, so some of the investment decisions may not good as others and some assumptions may go otherwise too. But we have to understand difference between their investment strategies and ours.

You may not be convinced yet, well .... if EPF make poor investment decisions because of they use "poor members' hard earned money" just think of NAVF.U's case; all you know majority of units hold by HNB and DFCC (and promised not to withdraw until end of 10 yrs period) the owners of Co-managers of the fund (NAVF) - Acuity Partners. See just less 25% (one firth) of the total fund has invested in CTHR (you may examine cost per share as well) and “Is it the most attractive/cheapest stock in CSE to NAVF to have such an exposure??” … then why do Acuity-NAMAL need to take poor decisions at expense of their own money? THINK!

Declaration: SPEN represent only 1.20% of my portfolio value but lot more my contributions are with EPF , so I don’t want promote SPEN or safeguard EPF’s investment strategy.

Wed Jun 29, 2011 11:37 pm by Academic · Wed Jun 29, 2011 11:37 pm by Academic

aladdin wrote:

Academic wrote:

aladdin wrote:Guys i feel all of u are going on a wrong direction. A fund like EPF is not investing on short or medium. Normally they invest looking at the long run such as 5-10 years of profit realization. In that view what above discussed will not be valid. Many think that the decision made by EPF is wrong because majority is in the set of mind of look at the short run.

But one thing is bit suspicious to me. All the time the seller was same to EPF. May be a core incident. But who knows.

I report u decide.

Just because you are going to hold for long why do you pay more?

Suppose you gonna buy a land to hold for 20 years, if you can buy it for X would you pay X+Y and buy?. It is always beneficial to buy at low regardless the time-frame ! No more justifications are needed (common sense), I suppose.

brother as every one else the people who drive that fund also cannot 100% predict the market. I am prety sure that when EPF was buying these shares, those showed a buy signal in all the technical as well as the fundamentals. Unfortunately due to many reasons the price has drop by now. So what i said is, the are not looking at short term. They look very very long term That is the reason they keep on buying mate. Look what will happen in 5-10 years time. I am 100% sure they get more than 100% profit. If they deposit the money in TB's they will end up geting just max 50% for 5 years. That is what i wanted to explain.

Lets do little maths.

As you say If EPF earn 100% after 10 years , the annually compounded return is

= 2^(1/10)-1

=7.2%

Current TB (7.25%, 4y 10m) yield rate is 8.6% (see in http://www.cbsl.gov.lk/pics_n_docs/latest_news/pd_bond.pdf )

This simply shows which alternative is better!

@ factFINDER,

You have valid points. However, transaction cost consists of both tangible and non-tangible items like opportunity cost and market impact. If an investor can't find a sensible price for intended volume due to intangible costs, s/he or mutual fund should avoid that investment. It is not prudent to buy anyhow at a premium.

Also, wrong investment decisions made by other funds can't justify EPF's poor performance. One particular investment decision may go wrong as in your example, but if whole portfolio of EPS is doing just 4% when market was doing near 100%. There should be something wrong there.

Thu Jun 30, 2011 8:48 am by Think9 · Thu Jun 30, 2011 8:48 am by Think9

@ factFINDER, : thanks for ur valuable input , guess we managed to bring the discussion to level 2. : )

Just look what Dr.Harsha wanted to explain in his article (I posted this in ma send msg ) . I too work as a analyst and I know how companies tryin their best to get huge amount of quantities at a lower price with negotiating with brokers. Sometimes internal transactions such as company to company too happen. (Like we see crossings every day). Transaction only happens if the buying company see a strong potential growth and to get at the best possible rate. Many companies have the holding power like EPF/ETF. But the factor is you always should buy at the right price.
Would like to be back on ur reasons :
1. Large and continuously growing fund base/cash flow - True you might have continuous growing fund base but, the re-investment strategies should be good. Imagine! You have that much money in you’re a/c . Will u buy SPEN at 220 – 180 levels?? I mean a PE of more than 30 ++++ . And u buy SPEN ? com`n I bet u, u wont.

2. holding power as long as 10-25 years – true they ve a good holding power but like I said, its nt a direct factor should consider, coz we’re talking about the investment strategy. Holding money is never a good option for the economy.

3. sell/buy large quantities – It is negotiating dealings, But the buyer demand the price he would buy unless that the seller cannot think of. Where is the professional demanding skills of the EPF ? You go to whole sale shop and will you ever buy 500Kg of rice for the retail price ?

4. “I guess the main reason behind EPF's move in to SPEN is their investment in Colombo Port Development Project which SPEN holds 30% stake.” – This im not aware of. If you find an article regarding this please do pass the link.

What about the risk and uncertainty factors? Shouldn’t we consider inflation ? global economy down turn ? oil prices in 10 yrs ? exchange rate dis-advantages ? Global warming ? natural disasters ? well…. That’s why buyin at the best price is important. (In negotiating transaction as well. )
ANYWAY ! this discussion not trying to pin point on gvt or anything. We`re just sharing our ideas so we gather more knowledge and different views of ppl.

Thu Jun 30, 2011 3:59 pm by CSE1 · Thu Jun 30, 2011 3:59 pm by CSE1

Think9 wrote:I always had this question. Do the EPF funds get invested in good shares?? and do the department analyst do proper study in stock before buying ??

EPF/ETF are people`s money. I think they have done so much mistakes before and im quite shocked who advice to buy.

i can remember, EPF bought huge qty of SPEN at 220, then 180 level , again 167 , latest 135 . And now its 134.. Why such a poor investments ? I mean we all know SPEN and most of the hotels got a higher PE. I mean just using simple ratios anyone can understand that SPEN is over-valued until it falls to 130-135 levels.. How many additional no.of shares EPF would ve got more no of shares, if they bought at 130-140 levels instead of 180-220 levels..

And mind you, EPF invested on GRAN at 220 levels..

Related articles :

http://www.ft.lk/2011/06/29/epf-active-in-sluggish-bourse/

http://www.ft.lk/2011/05/25/epf-buys-1-m-more-shares-of-spence-hotel-holdings/

http://www.ft.lk/2011/04/21/epf-invests-more-in-aitken-spence/

SPEN not @ 220 its on @230 (not sure i remmember it 18 mili shares)

Thu Jun 30, 2011 4:01 pm by CSE1 · Thu Jun 30, 2011 4:01 pm by CSE1

Wednesday, June 29, 2011
EPF portfolio Rs 924 b by May 2011

Investments in corporate debt securities soon :

Ravi Ladduwahetty

The Employees Provident Fund (EPF) has an astronomical Rs 924 billion in its investment portfolio by end May 2011. Of the total investment portfolio of Rs 924 billion as at May 31, 2011, the Fund has invested Rs 856 billion in Treasury Bills and other government securities, accounting for 92.7% of the total portfolio, Central Bank’s EPF Superintendent Rupa Dheerasinghe told Daily News Business yesterday.

Of the remaining investments, there is Rs 57.28 billion or 6.2% of the total portfolio which is invested in listed and unlisted equities of which there is Rs 53 billion which accounts for 5.5% of the total portfolio in listed equities while the investment portfolio in unlisted equities is Rs 7.1 billion or 0.7% There is also 0.5% or Rs 4.62 billion invested in Reverse Repo.

“Our investments in unlisted equities and Reverse Repo is very small, she said.

Of the Rs 53 billion in listed and unlisted equities, banks, finance and insurance companies account for Rs 18.55 billion or 35%, while diversified holdings have Rs 15.9 billion or 30%. The hotel and travel company equities have Rs 4.77 billion or 9% of the EPF funds while the portfolio in manufacturing companies account for Rs 3.18 billion or 6%. The investments in the construction and engineering sector are Rs 2.65 billion or 5% while the telecommunication sector accounts for Rs 1.59 billion or 3% and all other equities Rs 6.36 billion or 12%, Dheerasinghe said. However, she conceded that the investments in the unlisted equities were relatively small.

She said that the Fund was managing the monies of the people and was extremely vigilant in the manner of making the investments being acutely conscious of the security of the people some of whom have their lifetime’s savings in the EPF. “We are safeguarding the interests of the EPF members while giving them the best possible returns. We made an overall return of 15% for all our investments, she said.

“We are extremely careful when making the investments and our decisions are made by a fully-fledged team of Fund Managers who are acutely conscious of the market developments and fluctuations and their decisions are backed scientifically,” she said.

The number of member accounts by end May has been 13.3 million and the contributing employees has been 62,000 as at December 31, 2010.

The EPF will also shortly go in for investments in corporate debt securities, which will yield very positive returns as well, she said.

source - www.dailynews.lk