Is the Fat Prophets Global Contrarian Fund Ltd a buying opportunity?

The Fat Prophets Global Contrarian Fund Ltd (ASX:FPC) is trading at a discount to its net tangible assets.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Want fat profits, try Fat Prophets? The Fat Prophets Global Contrarian Fund Ltd (ASX: FPC) is a relatively recent Listed Investment Company (LIC) that listed on the ASX just under 12 months ago.

This LIC invests globally in securities (e.g. shares) and also trades commodities, currencies, and derivatives including futures and options. These are complex financial products that many investors may not understand or may not be able to use personally – which could mean that the Contrarian fund may have something to contribute to a diversified portfolio.

Fat Prophets says that its fund has been fully invested since June 2017, and it delivered 13% in positive performance (pre tax) in the half. Net tangible assets per share were $1.23 (pre tax) compared to the share price of $1.06.

Currently, the Fund is invested heavily in Japan (40% of its assets) and also has interests in Macau gaming companies, Disney, Praemium Ltd (ASX:PPS), several large oil companies, and Chinese internet giant Baidu.

Would Fat Prophets be suitable for investors?

Potentially yes, as many investors could benefit from additional international diversification. The Fund's ability to use options and futures may also add some diversification, but it also adds significant risk, which is why the qualifications and the track record of management is paramount.

However, one thing I really don't like about this fund is the fees. There's a 1.25% per annum management fee (which is acceptable), and a 20% performance fee with no minimum benchmark. That means that, of any performance generated, 20% gets paid to the manager.

Many other LICs and managed funds have a minimum benchmark where performance fees are only charged on returns in excess of a certain benchmark, usually the S&PASX/200 Total Return Index (ASX: XNT) (INDEXASX: XNT). So for example if other funds return 12% and the benchmark returns 10%, investors only pay performance fee on the 2% excess that was generated.

If I understand correctly, with the Global Contrarian Fund it appears that investors would pay performance fees on the entire 12% return, which would consume a lot of the benefits. The Fund does appear to have a high water mark, which prevents performance fees being charged if assets fall below their previous high point.

Still, all else being equal I would expect this fee arrangement to result in lower returns to shareholders. As a result I think investors should watch and wait to see if the Global Contrarian Fund is able to consistently achieve performance that justifies the fees before investing.

Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »