Investment trust insider on Weiss Korea – James Carthew: Korean trust proves a coronavirus winner
One of this year’s winners has been Weiss Korea Opportunity Fund (WKOF), whose shares are up 20% this year.
The fund’s benchmark is the MSCI South Korea 25/50 Index. Within the index, exposure to the largest stock is capped at 25% and exposure to all stocks accounting for at least 5% of the benchmark is capped at 50%.
Over the year to the end of July 2020, WKOF returned 15.8% in net asset value (NAV) terms against just 3% for its benchmark. This builds on a long run of decent outperformance from the trust. From inception in May 2013 to the end of July, WKOF’s NAV had almost doubled, rising 96.3%, while the benchmark had returned 42.9%.
The South Korean market is falling sharply as I write this. South Korea’s Covid-19 experience has been relatively good, which had helped buoy stocks until recently. However, it is experiencing an uptick in cases now that is causing the authorities there some concern. To put this in context, Korea is panicking about 297 new cases today, whereas we seem to think we are doing a reasonable job in the UK with over 800.
Korea has been praised for the success of its track and trace system and my hope is that this proves effective in controlling this new outbreak.
WKOF was launched to take advantage of the valuation gap between preference shares issued by South Korean companies relative to their ordinary shares.
The preference shares that WKOF holds are not like preference shares listed in London. In fact, the term is something of a misnomer as these shares carry no preferential rights to dividends or in the event of a winding up. They do have a right to receive a dividend at least as large as that on the ordinary shares, but they have no voting rights. These preference shares trade on discounts that are irrationally large and that has the benefit that WKOF’s portfolio produces a decent yield, standing at 2.3% at the end of July.
It seemed to me at the time WKOF was launched that… read more here