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Hawkeye80
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Hawkeye is a full time student of the incunabula, a part time investor, and a sometime observer of emerging markets.
  • "Hog Share" Positions in Emerging Markets Closed-End Funds 0 comments
    Feb 8, 2010 10:52 AM | about stocks: APF, CEE, CHN, ABE, IF, JFC, KEF, KF, LAQ, LDF, MAY, RNE, SGF, TDF, TF-OLD, TFC, TTF, TWN

    The Cantonese gentleman (a.k.a.: Gwailo) and Hawkeye have been discussing the large percentage shareholdings held by some institutional investors in some of the emerging markets funds listed in the New York Stock Exchange.  The Oriental academic assigned Hawkeye the task of browsing through some 13F filings to quantify this issue a bit, and we have cheerfully complied.  Here is Hawkeye's little chart showing the large shareholders in a sample of closed-end funds: (as of the date Hawkeye did our little research project)

      COL LAZ SAR 1607 DAYS TO LIQUIDATE
    APF 8.8% 5.6%   13.8% 113
    CEE 24.0% 9.3%   1.6% 87
    CHN 10.0% 11.8% 0.9%   28
    ETF 24.9% 29.1%   0.3% 171
    IF 12.4%   2.1%   25
    JFC 25.0% 16.2% 1.2%   119
    KEF 25.0% 19.5%   1.3% 88
    KF 25.0% 9.1% 6.3% 1.4% 250
    LAQ 25.0% 8.9% 6.0% 2.0% 218
    LDF 8.7% 7.1%     41
    MAY 25.0% 8.8% 4.2% 2.4% 160
    RNE 16.1% 0.3%   0.1% 52
    SGF 20.0% 8.7%   3.4% 86
    TDF 20.0% 2.8%   1.2% 119
    TF 24.7%       96
    TFC 26.1% 13.9% 13.2% 4.6% 218
    TTF 25.0%     3.6% 105
    TWN 25.4% 9.2% 8.5% 0.4% 92
    The column on the far right shows how long it would take for the largest shareholder to liquidate their position based on average trading volume.  Otherwise, the little chart pretty much speaks for itself.

    Hawkeye respectfully asks a few questions:
    1. Isn't it normally prudent to hold one's exposure to any one security to no more than 10% or so of total shares outstanding?  Hawkeye's experience in the real world indicates that this is a normal, prudent practice which is almost always enshrined in something called Investment Policy.  "Hog shares" are most dangerous to the health of a portfolio.
    2. Since it would be very difficult to unload a "hog share" position at anything close to the current market price, how can a fund of funds carry such an investment at the current market price which is typically set by small trades?  Maybe these positions need to be valued at a discount to reflect reality.
    3. This looks risky to Hawkeye, both to the underlying investors in the fund of funds and to the innocent bystanders who just want professionally managed exposure to attractive emerging markets.  Do both of these groups of investors understand the risks they are taking?
    Just asking.  Hawkeye plans to investigate the "hog share" model further and will revert.


    Disclosure: long nine of the funds
    Stocks: APF, CEE, CHN, ABE, IF, JFC, KEF, KF, LAQ, LDF, MAY, RNE, SGF, TDF, TF-OLD, TFC, TTF, TWN
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