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BUSINESS GUARDIAN www.guardian.co.tt MAY 2013 • WEEK THREE
A very interesting thing occurred last
week Tuesday that may have gone unnoticed
by many of us as it failed to make the news.
I refer to the net asset value (NAV) of the
Clico Investment Fund (CIF), which for the
first time since its establishment on Novem-
ber 1, 2012, has crossed the $25 mark, or
the price at which policyholders were
required to convert their 11-20-year Clico
zero-coupon bond into units, to reach a
high of $25.40 as of Monday.
This increase in "value" as opposed to
"price" has to do primarily with the appre-
ciation in the market price of the 40,072,299
Republic Bank shares, which as unitholders
would recall, constitute more than 86 per
cent of the CIF s underlying assets with the
other 14 per cent being made up of GORTT
4.25 per cent coupon bonds.
My own analysis suggests the increase in
the Republic Bank share price has to do
with the recent news that the bank has
declared after-tax profits of $552.5 million
attributable to shareholders for the half-
year ending March 30, 2013, an increase of
0.4 per cent over the previous period.
The board has also declared a half-hear
dividend of $1.25 payable on May 31, 2013.
What this means is that $50,090,373 would
be paid to the CIF on that date.
According to the trust deed, 95 per cent
of this amount or $47,585,855 would then
become available, along with 95 per cent
of the interest payable on the bonds, for distribution
to unitholders on August 21, 2013. My back of the
envelope calculation puts this amount at around
$0.30 per unit.
In case you may have missed it, please permit me
to return to a distinction I made earlier when I used
the term value as opposed to price in relation to the
I believe it is stock market guru and the CEO of
Berkshire Hathaway, Warren Buffet who said, "Price
is what you pay; value is what you get." This quote,
I am persuaded, aptly and succinctly describes what
is happening presently with the CIF s trading or
market price of $21 as opposed to its NAV of $25.15.
The famous quote is contained in the Buffet s 2008
annual report to shareholders of Berkshire Hathaway
Inc at the peak of the recent global financial crisis.
He said he learnt it from Benjamin Graham, widely
recognised as the first proponent of "value investing."
Reacting to the market
At the time, it came in handy for him to explain
the very often distinct characteristics between the
share price and the value of a company. It is also
essential as investors/unitholders that we in T&T
clearly understand this distinction because stock
markets rarely price shares/units correctly, as the
market very often over-reacts on the upside and on
the downside as investors tend to get carried away
by periods of "irrational exuberance" or "bouts of
We must keep in mind that on conversion of our
bonds to units, we bought indirect, part ownership
of a business (in this case, a bank) with tangible assets
(such as property, equipment and financial assets)
and intangible assets, such as the goodwill of a brand
The value of these assets does not normally change
just because the stock market prices fluctuate from
one day to the next. As long as the fundamentals of
the bank are strong, the daily share price changes
on the stock market do not alter the asset value of
Some stock market critics define a share price as
the value of a company multiplied by investor sen-
timent. Since the value of the company tends to be
stable while sentiment is usually volatile. Market
sentiment is affected by a number of factors, which
could be either positive or negative news reports in
the media daily.
On the other hand, information of a company s
performance is published quarterly. Accordingly, in
the interim, share prices can be very volatile and
companies may become under-valued or over-valued,
providing opportunities for investors to capitalise on
a gain or accumulate further shares/units at cheaper
prices for the longer-term.
A parallel can be easily drawn with the property
market. If you wish to sell your house and someone
offers you a low price, you will reject it because it
isn t in sync with the value that you know your prop-
erty is worth based on your most recent professional
In fact, you would sensibly wait until the right
offer comes along, ensuring that you do not allow
yourself to be taken advantage of, but more impor-
tantly, that you obtain fair value for your property.
However, if a real-estate agent comes into your neigh-
bourhood and starts fuelling speculation that property
prices are likely to fall, because there might be a
plethora a of similar properties coming on to the
market at possibly lower prices.
You are likely to panic and sell your property at
a lower price even though you know that it is worth
more. Knowing when to sell, hold or buy units is no
Clico Investment Fund crosses the $25 rubicon
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