Saturday, March 18, 2017

Of Rights, Warrants and Your Bedokian Portfolio

If you belong to the active camp of investors of The Bedokian Portfolio, chances are you might see the terms “rights” and “warrants” in your individual equities and REITs counters. For this post, I will share what are rights and warrants, how these would affect your Bedokian Portfolio and what to do about them.


Rights are entitlements to existing shareholders for the purchase of additional shares of a company/REIT at a typically discounted price. When a company or REIT announces a rights issue, it will include a few numbers that determine how many additional shares are entitled per number of existing shares. For example, a company announces that there will be a rights issue of 250 shares for every 1,000 shares owned, priced at $1.00. This means if a shareholder has 1,000 shares, he/she will be entitled 250 additional shares of the company, priced at $1.00 each.

To make it enticing for current shareholders, the rights are usually priced lower than the prevailing market price. Citing the above example, the current market price may be at $1.20, which means getting the additional shares at $1.00 is a bargain. However, issuing of rights would reduce the shareholders’ holdings, meaning for dividends, the company would have to divide the earnings more over a larger shareholder base. Also, simple math would tell you the market would adjust the price according to this $1.00 rights price.

E.g. [(1,000 shares x $1.20) + (250 shares x $1.00)] / 1,250 shares = $1.16 (price that the market may display immediately after the rights announcement is made, assume all things equal)

There are two types of rights, renounceable and non-renouncable. Renouncable rights allow you to transfer or sell them away, usually in a share market where they are listed. Non-renouncable rights do not allow you to transfer or sell them away.

Rights are not permanent; they have an expiry date. The company would give some time for the shareholder to consider whether to exercise the rights or not. If he/she does, he/she would just (again, using the above example) pay up 250 x $1.00 = $250.00 for the rights. If not, he/she could sell them off in the market (provided it is renounceable) or just let it lapse after the expiry date (and no money transacted).

The main reason companies and REITs issue rights is to get more capital to fund its business plans and operational needs. Although a company or REIT could get loans, on an accounting basis, rights are more presentable in a way that they represent assets in the form of shareholders’ equity, not under liabilities (or debt) in which loans belong to.


Warrants are contracts that give you the right, but not the obligation, to buy or sell a company’s share at a certain price on a certain date. Warrants are a form of derivative, and may prove daunting to new investors who do not know how they work.

Warrants have three basic components; the underlying asset that they are covering (usually company shares), the expiration date and the exercise price (or strike price). They are priced at a fraction of the company’s share price, and like their share counterparts, their prices could go up or down depending on their demand, supply and market situations. However, warrants are more volatile due to its limited time existence (they have an expiry date), the exercise price attached to the warrant (with relative to the current share price) and volatility of the share price itself.

There are many types of warrants, but what I am covering here are warrants issued by companies (or company warrants). Owning warrants does not mean you own the shares; they are like a “passport” for you to buy the shares at the exercise price come expiration date. You could also not buy the shares if the exercise price is not in your favour, and just let the warrants lapse. Hence this explains the “right, but not the obligation” part stated above.

E.g. I am issued 1,000 ABC Company warrants at $$0.10 each, giving me the right to buy ABC Company shares at $10.00 each on 31 Dec 2017.

When 31 Dec 2017 comes, the ABC Company’s share price is at $15.00. I exercise my warrants (the “right” part) to buy up 1,000 ABC Company’s shares at $10.00, which is a good bargain. However, if on 31 Dec 2017, the share price of ABC Company is at $5.00 each, which is far below my $10.00 exercise price, I just simply ignore it (the “not the obligation” part).

The above is an example of a “call warrant”, i.e. the right to buy at this price at this date. Another type of warrant, called a “put warrant”, is the reverse, i.e. the right to sell at this price at this date. Put warrants are good in situations where the company share price is falling, so you could sell it at a higher price with regards to the current market price. However, put warrants are seldom issued by companies.

To make things more interesting, most of the time these warrants are tradable, meaning you could just buy and sell before the expiration date. This means if you are issued the warrants, you could just sell them off.

The main reason for a company to issue warrants is the same as that of rights, i.e.  raising capital.

How do These Rights and Warrants Affect My Bedokian Portfolio and What to Do About Them

Though the sub-title above sounds ominous, it is nothing serious as the main effect on your Bedokian Portfolio would be your asset class allocation and classification. The concerns would be; by purchasing additional rights, particularly at the equities and REITs asset classes, might affect your allocation ratio and increase your individual counter holdings to probably more than 12% (see here). As for warrants, having derivatives in your portfolio sounds a bit weird as you cannot determine what to make of them and which asset class they belong to, not to mention about some investors who are not familiar with them in the first place.

My advice is, for rights, just purchase it and buy up to the nearest 100, in case the rights issues are not in a rounded number, e.g. if you have 1,000 shares and the rights ratio is 363 rights per 1,000 shares, just buy up 37 more rights to make it 400. If you are comfortable and/or the asset class allocation is not compromised, you could buy up more. The risk of not buying up the rights is the dilution of your holdings, hence it is better to “keep up” so as your dividends from this particular company/REIT remain sustainable. Use the cash component from your Bedokian Portfolio to make the purchase.

For warrants, unlike rights, there is no immediate dilution effect as no one knows how many shares would be bought by the warrant holders by that expiry date, not to mention the market price of the shares by then. If you are comfortable in holding the derivatives and on the company’s performance, just hold them on, else you could sell them off when the warrants are open for trading. Proceeds from this sale will go to your cash portion of The Bedokian Portfolio.

And as usual, please do your own fundamental analysis and other forms of due diligence before committing to the rights and warrants.

Further reading:

Investopedia. Rights. (accessed 18 Mar 2017)

Investopedia. Warrant. (accessed 18 Mar 2017)

Saturday, March 11, 2017

Physical Gold and Silver, the Whats and Hows – Part 3

In this final part about physical gold and silver, we will look into how to maintain, keep and store your bullion.


Bullion bars come in two forms; cast and minted. Cast bars looked like bricks and are considered “no frills”, having being produced from a simple mould and come with no packaging. Some bullion dealers would shrink-wrap the cast bars to protect them.

Minted bars are more refined looking, typically engraved with the refinery’s logo and come with packaging. It is advisable not to remove the bars as most dealers prefer to buy them back with the original packaging.

For bullion coins, they come in tubes of at least 10 from the mints, but individually they could be packaged with coin capsules at a small cost.


Tarnishing is the corrosion of the outer layer of a metal, and silver, though a precious metal, is susceptible to it. A tarnished silver bullion does not sit well with dealers when you want to sell it back to them, therefore it is necessary at least to have packaging for your silver bullion to protect them. Storing them properly would prevent tarnishing further, and if possible surround your silver bullion with desiccants like silica gel and/or anti-tarnish strips.

Storage Options

There are three main types of storage options available for physical gold and silver, all based on locale. The first one would be at your own home, and safes, dry cabinets and dry boxes (the latter two used for storing photographic equipment) are ideal. These would help protect your silver from being tarnished, and for safes the additional advantage would be protection from fire. Place them in inconspicuous parts at your home like in your bedroom or store room.

The second option would be safe deposit boxes. They are like safes, but located typically within a bank or financial institution, hence there is added protection and security. The contents of the safe deposit boxes are only accessible by the owner, thus a high degree of privacy. Rental costs for the boxes are dependent on their sizes, and they are usually payable on an annual basis.

The third option would be storage facilities (or vaults) offered by bullion dealers. Similar to safe deposit boxes, the storage facilities are located within a highly secured premises. To add, most of the dealers allow you to transact your physical gold and silver and have them bought into or sold out from the vaults themselves.

Storage does incur costs, from the sunk costs of getting the safe and dry cabinet or box, to the recurring costs for the safe deposit boxes and storage facilities (and also electricity for the dry cabinet, though that is almost negligible).

And so we come to the end of the whats and the hows of physical gold and silver. I hope the three parts would give you a good insight of investing in gold and silver bullion within your Bedokian Portfolio.

Thursday, March 9, 2017

Another REIT ETF is Coming

Good news for index investors; There will be another REIT ETF coming out by end March 2017. Called the NikkoAM-Straits Trading Asia ex Japan REIT ETF, this would be the second REIT ETF listed in the local Singapore Exchange after the earlier Phillip SGX APAC Dividend Leaders REIT ETF, which was launched in October 2016.

About the ETF

Nikko Asset Management, the people who brought you the Nikko AM Singapore STI ETF and the ABF Singapore Bond Index Fund, manages the NikkoAM-Straits Trading Asia ex Japan REIT ETF (for simplicity let us call it NikkoAM-Straits Trading REIT ETF). The investment adviser is SRE Capital, which is a subsidiary of Straits Trading Company Limited, hence the name in the ETF.

From the brochure1, the ETF tracks the FTSE ERPA/NAREIT Asia ex Japan Net Total Return REIT Index. The ETF is expected to generate a yield of 5% per year, and dividends are to be paid quarterly. It is Asia-centric, with 79.4% of the ETF concentrated on REITs from Singapore and Hong Kong. Also, 84.8% of the ETF would be on industrial, office and retail REITs.

Simple Comparison with the Phillip REIT ETF

Let us compare this REIT ETF and the Phillip SGX APAC Dividend Leaders REIT ETF2or we call it the Phillip REIT ETF for short. First, it is obvious that both are tracking different indices. The next major difference would be the geographical coverage of both ETFs; 58.8% of the Phillip REIT ETF holdings are based in Australia, and 29.5% in Singapore, as compared to the NikkoAM-Straits Trading REIT ETF’s 0% in Australia and 58% in Singapore.

It is interesting to note that both ETFs have almost the same REIT holdings when it comes to Singapore and Hong Kong; both have the Hong Kong-based Link REIT, and Singapore-based Ascendas REIT and CapitaLand Mall Trust.

The Bedokian’s Take

In my opinion, both ETFs can be included in the REIT portion of The Bedokian Portfolio. The only major difference would be the geographical exposure; the NikkoAM-Straits Trading REIT ETF is more local based than the Phillip REIT ETF, which is concentrated a bit more on Australian REITs. It is alright to have two in your portfolio but do bear in mind that some of the REITs in the Singapore and Hong Kong portions of both ETFs are the same.

According to The Bedokian Portfolio p 111, the NikkoAM-Straits Trading REIT ETF would be classified as a local ETF.

Disclaimer applies.

2 – Phillip SGX APAC Dividend Leaders REIT ETF. Product Info Sheet (January 2017). (accessed 9 Mar 2017)

Further reading:

NikkoAM-Straits Trading Asia ex Japan REIT ETF. Prospectus dated 27 February 2017. (accessed 9 Mar 2017)

Saturday, March 4, 2017

Physical Gold and Silver, the Whats and Hows – Part 2

In Part 1, I had touched on spreads, weights and spot, the spread within the spread, and a little bit on mints, refineries and the London Bullion Market Association. In this part, I will go into semi-numismatics and numismatics (or known as semi-numis and numis), jewellery and why they are not ideal for physical gold and silver investments, and whether you should go for bullion bar or coin.

Semi-Numismatics and Numismatics

According to the Oxford Dictionary, the word “numismatics” means “the study or collection of coins, banknotes, and medals”1. As for semi-numismatics, there is no clear definition, but usually it is a coin that is priced above the actual value of the gold or silver in it and is a collectable.

The key words mentioned are “collection” and “collectable”, so semi-numis and numis coins are meant for collectors who value them not just by their worth of the metal, but also their design, grade and rarity. For example, to a bullion investor, a 1 oz Year of the Dragon 2012 gold coin is worth almost the same as any other 1 oz gold coin, but to a collector it may be worth much more due to probably its intricate drawing of the dragon, the high grade and the limited circulation.

Semi-numis and numis are not an issue if you are a coin collector, but for the purpose of pure investment of the value of physical gold and silver, semi-numis and numis are not recommended, for they do not reflect the true price of the commodities in question. If you are both a Bedokian Portfolio investor and a coin collector, do remember to segregate your semi-numis and numis from your bullion.


Jewellery are something that you wear on your body, be it earrings, pendants, bracelets, rings, etc. They are good to look at, but it is not good for investment. Most jewellery is not made up entirely of gold and silver; they would be too soft to withstand the rigours of jewellery making and wearing. Also pure silver tends to tarnish easily when there are impurities in the air. Therefore other metals such as copper are added into the gold and silver to make them more durable.

Jewellery gold is graded in terms of karats (K), with 24K being pure gold. The common grades meant for jewellery are 18K and 22K, which consists of 75% and 91.6% gold content respectively2. For jewellery silver, sterling silver is typically used, with silver content of 92.5%.

In addition, unlike most bullion, jewellery is not exempted from the Goods and Services Tax. There is also this issue of a high mark-up due to workmanship fees. With all these added up costs, and they are not really investment grade gold and silver to begin with, the conclusion is jewellery is not suitable for The Bedokian Portfolio.

Bullion Bar or Coin?

To me, there is no difference in having bullion bars or coins for physical gold and silver, but to give a fair comparison, I shall highlight some advantages for each of them.

Pluses of bars
  • ·      Bars tend to be cheaper than coins in terms of the “spread within the spread”, given the same weight.
  • ·      Bars come in more weight steps than coins, in grams (g) and in ounces (oz).

Pluses of coins
  • ·      Most coins are legal tender, which means there is value attached to it and could be used as money (though the value is much less than the actual spot price).
  • ·      Coins could incidentally be worth more than its spot price due to its semi-numismatics or numismatics value.

In the next final part, I shall share with you on how to keep and store your physical gold and silver.

2 - Gold Purity and Colour Guide: What is the difference between 24K, 22K and 18K gold. (accessed 4 Mar 2017)