I was at the MIIF presentation yesterday to get further insights of how the Macquarie International Infrastructure Fund (MIIF) was performing. Gavin Kerr, managing director of MIIF’s manager, gave a review of the 3rd quarter’s performance as well as answered questions from the audience.
While the share price has dropped more than 50% in the last two months, we were told the business of the underlying assets were still pretty much sound. The drop in share price was due to hedge funds selling and extremely bad market sentiment.
This is one of the pitfalls of being a listed fund – having a valuation that is affected by daily market sentiments. If MIIF had been unstructured as an unlisted fund, the investors would be sitting pretty comfortably collecting their regular dividends, with not much change in the NAV of the fund.
But as MIIF is listed, we do get daily quotes of the price. It would take a heart of steel for a shareholder to be unaffected by a 70% drop in the “mark-to-market” value of his investments.
Actually, if I were a long term investor of MIIF (this applies to any stock) AND the business fundamentals are still good, I wouldn’t be too affected by the extremely depressed price. Why?
- As a long term investor with holding power, I have no intention of selling so the low price is irrelevant to me. Unlike listed companies, I do not need to report to shareholders every quarter and face the music for a big impairment to the balance sheet. A low price is only negative for me if I need to sell.
- On the contrary, I can make use of the low price to accumulate more of MIIF if I want to.
- The management fee charged by Macquaire is based on the average share price. A low price means the fund will be paying less in fees. This is a reduction in expense and is good for shareholders. Having said that, I feel that a fee structure based on share price is far from ideal.
You can download the presentation slides below: