Saturday, December 25, 2021

2022 Roadmap

 I agree with Felix Zulauf's views.  This is my current roadmap:

  • 2022 will be a volatile year unlike the ever-rising markets of 2021.
  • Govt fiscal and monetary policy effects have fallen yoy.  He expects a correction in 1H22.  Maybe 15-30%.  Oil could get to $50.  Tech and "risk-on" assets continue to do badly.
  • Then the Fed will panic and we get a resumption of the bull market into 2023/2024.
  • This will be inflationary, commodities "go wild", oil could go to $200, CPI could be 10%.  Tech and risk-on assets will do well.
  • Eventually inflation forces the Fed to raise rates.  Causing the worst bear market in our lifetime.
  • He "would love to see gold break the 1720 lows to shake out the weak money....High 1600s, low 1700s would be a good entry point."  He would buy for the coming correction in 1H22, but sell during/after the correction.  Longer term he expects a massive gold boom in 2023/24 with the big bear market.

I think this is a good way to picture the future: a pullback after 2021's excesses, followed by an inflationary boom, followed by $200 oil crippling the world economy.

Its a blurry picture and the dates keep changing.  I previously thought we would have a correction in 2H21 - that didn't work out.  Lets see if this time is luckier.

One thing that could destroy this outlook is war.  The Chinese invade Taiwan, brining a new dimension of risk to the Asian & German economies and global US corporations.  Or the Sunni/Shia resume killing each other, driving oil up beforehand.

Predicting the future is more about what *can* happen rather than what will.  Long term predictions are more intellectually gratifying than useful.

I think its time for me to take another stab at buying gold.  I use Hedgeye to time my trades in the short and medium term.

Saturday, December 11, 2021

Goodbye, Aidan

One day, while signing up to some investment forum, I looked around the room trying to think of a username.  A picture of our cat hung on the wall.  So I became BlackCat.

This is his story.

Early 2005.  My wife selected a black kitten from the SPCA.  On the taxi ride home, holding his box in my lap, I opened it and he stared into my eyes.  I knew he would be mine forever.

When we got home he was terrified.  We left him in a room to settle in.  He hid behind the curtains with his little feet showing.  I sat there for an hour to get him to come out.  My wife named him "Aidan".  I called him "cat".

He was scared of everything.  He would hide from the vacuum, from thunder, from any stranger at the door.  When I showered him he would howl like I was murdering him.  He hissed at the vet, who put multiple warnings under his name.

He loved us.  When you held him he purred loudly, you could feel the purrs go through you.  When he was purring in your arms, only the two of you existed and nothing else mattered.

He was demanding.  At dinner time he would meow loudly, a harsh "WAAAHHH", until I put the food bowl in front of him.  He would stand over it and scoff it down loudly.  Somehow, he loved strawberry leaves and yogurt.  He would meow with a psycho look until you gave it to him, then after he gobbled it down he would demand more.

Affectionate, demanding, loud and scared.  Through 14 years he was there for us, through a parade of different jobs, through ups and downs.  Whatever happened, I could pick him up, feel him purr, and everything would be OK.

Late in 2018 he began peeing outside the litter box.  The vet did an MRI scan and said he had a large tumor.  Couldn't tell if it was cancerous, and couldn't operate because he was too old.  "I'm sorry I can't tell you anything good.  Spend some time with him."

We put him in diapers.  Gradually he got slower, walking with a drunken gait.  After his back legs stopped working he would drag himself around with his front legs.  He still loudly demanded food and scoffed it down.  He was stubborn.  When I came home from work he would demand loudly to be picked up.  He rocked sideways with excitement when I reached for him.  I'd put him in my lap and he'd purr and fall asleep.

Last weekend, I had to hold him up to eat his food.  I knew.  I think he did too.  On the last night, he was lying down, couldn't move.  I fed him some yogurt - I can still see his little pink tongue licking it off the spoon.  The vet came the next day.  I held my hand over his little head as he went to sleep for the final time.

Thank You, Aidan.  You bought us joy.  RIP Aidan 2005-2021.

Monday, December 6, 2021

What I'm doing now...


My crystal ball says the inflation rate is decelerating (not deflating).  And every man and his dog is talking about inflation now:

I've stopped buying commodity stocks while I slowly deleverage by adding cash.  Maybe I get another chance to buy if we get a correction in 2Q22.  The crystal ball is blurry and changes a lot.

I still think we're in for a decade of inflation.  US debt is too high.  This is just a short reprieve.

NorNickel, Whitecap, Total Energies and Deterra Royalties look interesting.  Plus maybe ASX and MOEX.

This blog will probably be quiet for a while.

Tuesday, November 30, 2021

Some Risks of Digital Core REIT

A couple of bloggers said great things about this upcoming IPO.  I agree and think its a reasonable yield, with good growth prospects from freehold properties in a hot sector.  I'll be subscribing.

But since I'm a pessimist by nature, lets talk about the downside.


The biggest long term issue.  Avoiding the 30% witholding tax goes against the spirit of the law.  Lets face it, the US does not need Singaporean (or anyone else's) money to build buildings, and there's no benefit allowing foreigners to own local property.  They may as well tax us.  There's an ever-present risk that unit holders wake up one day to find 30% of their dividends taxed.

For those who miss the IPO, maybe you'll get a chance when that happens (or when the market prices it in).

This same risk applies to any SGX-listed US REIT, so I personally wouldn't hold more than one of them.


US inflation is hot, over 5% pa for the past 6 months.  Inflation is expected to continue rising due to increased residential rent.

Digital Core's rental escalations are only 1-3%, with a WALE of 6 years.  If we get inflation spikes, we are stuck with today's rental for 6 years.

Management Incentives

The manager's fees and bonuses are based on total property value and net income:

This can incentivise management to do dilutive acquisitions: management fees increase when total income increases, even if per unit income falls.

The fact that Digital Realty will still hold 39% (or 33%) of the REIT helps to lessen the risk of them diluting its value.

Still, I'd prefer to see incentives based on "per unit" measurements.


Taxation is the biggest issue, and I think it'll will always be hanging over the head of this REIT.  The others are normal REIT risks, see how they fit into your portfolio.

Position size accordingly.

Saturday, October 30, 2021

What I'm Positioning For

Inflation.  And more of the unhappy kind (stagflation), rather than the happy kind (growth).

Long term I see inflation spikes this decade.  Not hyperinflation, just spikes of 5-10% some years with a 'normal' rate 2-4% for others.  Like the 40's or the 70s.  If you haven't already done so, you really have to read Lyn Alden's two pieces on why:

Investing in this kind of environment is really tough.  In real terms, expect a sideways market that treads water for ten years.  Its not like the last decade, where ever-falling rates boosted asset prices.  Its the opposite, when ever-rising wages reduce profit margins.  Asking whats a good investment during this is an oxymoron.  For the last decade investors had the wind in their sails.  This decade we'll be pushing boulders uphill.

To make it worse you can't hold cash.  Your cash is melting at 3-10% a year.  Learn to love the boulder.

Market Outlook

In 2-3 years, I think energy prices will rise enough to cause a recession.  Brent around $110 to 120-ish for 6 months should do it.  When that happens, the Fed can't fix it, and spraying all the liquidity they can will only make it worse.  It'll be our first real recession that can't be fixed by the Fed, it will feel more like 2008 than 2020.  Gold would be my hedge for this, but thats not here-and-now.

Before this, I think:
  • Energy is a getting overbought now.  I think after Winter it sinks to a more reasonable (though still elevated) level.
  • The Inflation trade is now becoming consensus.  ZeroHedge is running an inflation article every few days.
  • Can't see any sign of a correction now, maybe in 2Q 2022.  Especially if the Fed tightens then.  Think it'll be a short, sharp one like Dec 2018, as the Fed reverses course and starts spraying with a fire hose.

How am I positioned?

To prepare for higher inflation, I'm moving more into commodity producers.  Anything that cant be printed:

The trouble with commodity producers is that they are really tough to invest in:
  • Mines collapse and flood all the time, even in first world countries.  
  • Developed countries have extracted all their easy-to-reach resources, so companies at the lower end of the cost curve are in developing countries.
  • Who commonly change the rules and raise taxes.  Here, here, and here.
  • Meanwhile companies in first world countries face ESG pressures.
So its a lot of small 2% positions, spreading out the operational & political risk.  Out of the 17%: 5% is Malaysian palm oil (United Plantations),  6% is in Russia (oil, gas and fertilisers at 2% each), 4% Kazatomprom, and 2% copper.

My REITS should be fine.  Hard, scarce assets plus debt.  Only half their properties are in Singapore.

Energy pipelines should be ok.  Costly assets with low maintenance costs, and high debts paid off in tomorrow's dollars.

I want to get rid of Netlink Trust, but for now its a cash/bond proxy, paying 4% while I wait for the correction/recession.

What do I want more of?  Copper, aluminium and battery metal producers.  Oil producers.  Its tough to find companies to buy, especially with sustainable dividends.  Maybe stock exchanges in commodity producing countries.

No banks or bonds.  US debt is so high, interest rates need to be held down.  Negative real rates deflate the debt.

I'm slightly over leveraged, at 104% invested.  Will stop buying and get my leverage back down.  Waiting for the next correction.

Saturday, October 9, 2021

Canadian Natural Resources (CNQ)

I'm interested in energy producers because I think we're in for a decade of inflation and currency devaluation.  I want companies that are producing crude, without much refining, paying sustainable dividends, and with manageable geo-political and ESG risk.

Extracting flammable materials from deep down is a risky business.  I want to spread the risk by taking many small 2% positions.

An oil producer's job is to extract oil & gas, sell it at a profit, then use some of the profits to replenish or build-up their reserves.  Usually I just take a cursory look at a company's reserves, profits/cashflow, debt, position on the cost curve, and political risk.

I'm looking at the 2nd largest Canadian oil producer CNQ.  I traded it years ago, first got the idea from Hedgeye (who no longer cover it).

Operations and political risk

80% of their 1H21 revenue is from Canadian oil sands, with the remainder from the North Sea and Africa.

There are two main political risks with Canadian oil production:

  • Oil production from Oil Sands is considered environmentally unfriendly.  Theres a risk of ESG pressure or environmental regulation.
  • Canadian oil has no pipeline to a port.  They must rely on the Keystone to the US, whose expansion was cancelled.  Canadian producers sell their oil at WCS prices, at a discount to WTI.
Apart from the above, Canada is a low risk country.  Unlike most other energy producing regions, it does not have political risk (nationalising resources or levying taxes).  And it will never be a war zone.


Canadian oil sands require high fixed investment, but once set up have low or no decline.  Their reserves are effectively infinite.  


Simple to understand, they have fixed costs, and are operationally leveraged to oil prices.  Their 1H results from 2020 and 2021 illustrate this perfectly:

Debt at CAD 19b is a bit higher than I'd like.  They expect to reduce it to 15b by end of 2021.

A Morningstar report from last year estimates their cash breakeven costs at USD 35-40 (WTI).

The quarterly dividend is CAD 0.47.  They did not say they plan to increase it, but will engage in buybacks instead.  After they reach 15bn debt, half the company's free cash flow is targeted to buy back shares (pp11-12).


A (mostly) safe company, without the political or confiscation risk in many parts of the world.  High fixed costs.  Good leveraged play on oil prices.

Monday, September 6, 2021

Bought more Kazatomprom

Uranium is starting to be squeezed with with Sprott's Physical Uranium Trust buying on the open market.  This may be the even that kick starts the long-awaited Uranium rally:

Bought 340 GDRs at USD 32.69 this afternoon, it now totals 3% of my portfolio.

Short term this is risky, I'm buying something thats overbought after WSB has pumped it.  But longer term
Kazatomprom pays a 4% dividend while I wait for the action, and can go up 3X if U308 hits $100.  Good bull markets don't give you a chance to get onboard.

Sunday, August 22, 2021

Bought United Plantations (KLSE)

Bought a 5% position in United Plantations (on the KLSE), an efficient Malaysian Palm oil producer.

Its a steady, boring dividend payer.  Their cashflows generated cover their dividends and capex.  They should do well if CPO prices rise in an inflationary environment.  Last year, they paid 85 sen dividends at a 90% payout ratio with an ASP of RM 2613.

For their 1H results

  • Revenue increased 43%, but costs were up 66%, mainly due to a labour crunch in importing foreign workers.  PAT was up 3%.
  • The refinery segment took a ~30m hedging loss, which should be reversed upon delivery of goods in the coming quarters.  Around 3 sen per share.

The biggest risk is if covid is detected in their operations, they may have to stop them.

Unlike REITS, they are debt free, so will not be affected by rising interest rates.

This idea was from Asian Century Stocks (paid link)

Saturday, August 21, 2021

Sold my Gold. Stop Trading a while.

2 weeks after I build up my large 9% gold position, it hiccuped:

After that, I reduced the large position, losing ~USD 1K, and am now down to a manageable 3%.  Will probably sell it all.

The macro environment keeps changing too fast.  If I trade now I need to hold smaller positions for shorter times.  That doesn't suit me so I'll stop trading for now.  I trade best when I am willing to buy at times that no one else is - and thats not now.

The market is still reasonably priced, I'll just buy dividend stocks instead.

Friday, July 30, 2021

Bought Tencent and Gold

Took advantage of last weeks China stock turmoil to buy a 2% position in Tencent.  Bot 200 shares at HKD 460.20/share.

My reasons for buying:

  • It owns the omnipresent WeChat platform.   The company is a monster with its tentacles stretching throughout China's technology ecosystem.
  • Its reasonably cheap, at under 30X earnings with 15-20% growth and no net debt.

I am keeping the position to 2% because this stock can go to zero:

  • The VIE structure
  • Geopolitical risk.  How much are any China shares worth if missiles start flying over Taiwan or the South China Sea?

Also bought a big position in GLD, now 9% invested.  I consider gold to be a currency like USD or SGD, so can hold a lot of it.  Expect it to do well with rising inflation over the next few months/quarters.

I'm now almost 100% invested:

The holdings:

Friday, July 16, 2021

Why I want to buy Gold

 Gold may have stopped falling:

In the coming years, I expect periods of high inflation like in the 40's or 70's.  Gold serves as a decent inflation hedge, even if its not a great one:

In the coming quarters, I expect a lower q-on-q growth rate.  Gold does well when growth slows.  One caveat is that even through the growth rate should be slower, GDP growth itself should still be high (mid-to-hight single digits).

In the next few months I think there's a good chance of a market correction.  When market exuberance hits slowing growth.  Think it'll be a small correction like Dec 2018, not a crash like 2020.  Gold hedged against past market corrections well.  I put the chances of a correction this quarter around 50:50.

Gold is the best bet for me now.  Copper may be a better inflation hedge long term, but does badly with slowing growth.  Gold miners will go up more than gold over several quarters, but won't hedge against a correction.  So just hold the shiny yellow stuff paper.

I bought a small 2% position nought during last month's shakeout.  Right now its hard to buy more, its always overbought.  Got a feeling it won't be oversold for a while.

Lots of reasons to buy it.  No reasons not to.  This is my only high conviction trading/investment idea now.

Thursday, June 17, 2021

Where are we in the Palm Oil price cycle?

There are a lot of listed CPO producers in Malaysia, Singapore and Indonesia.

The CPO price is really volatile:

The latest peak is probably caused covid-19 supply disruptions, and is probably temporary.

Where are we in the commodity price cycle?


I don't think we can predict demand in the next few years.  There's too many moving parts:
We are better off looking at supply.


Palm Oil can only be grown at plus or minus 10 degrees from the equator.  In 2018, Indonesia supplied 56%, by far the most.  Malaysia supplied 28% with the remaining 16% from other Asian, African or South American countries.

The long term factors affecting supply are the number of hectares planted and the age of the trees.  The trees start producing 30 months after being planted, and reach peak yield at 7-13 years.  Production slowly declines since then:

Source: Palm Oil World

This December 2020 CPOPC report explains supply well:

Other figures corroborate this: Malaysian Palm Oil production has been flat for the past 5 years, while Indonesia's has been rising:

Source: Indexmundi (MsiaIndon)

In summary:
  • Malaysian CPO production has been flat, while Indonesia's growth has slowed (though is still currently growing enough to meet demand).  
  • If both Malaysia and Indonesia catch-up in replanting new trees, it would temporarily remove around 2.6m tonnes (estimated 3.5% of world production).  I guess it would take 4-5 years for production to recover from this, after which it starts exceeding today's numbers.
  • El-Nina has unpredictable short term effects on prices.  It may increase or decrease palm oil production, and affect soybean production (substitute for palm oil) in Latin America.
I would say that 2019/20 may have been the bottom of the cycle, but its not clear.  We did not see the type of demand destruction typically associated with the bottom of commodity markets.  But we did see some curtailing of growth.

If we do get a CPO boom, expect supply to catch up with demand in 3-6 years time.

Tuesday, June 15, 2021

Bought Uranium Stocks

Been looking for a chance to buy Uranium producers.  For the inevitable uranium bull market.  Was waiting for a market correction, but this news ("Chinese nuclear plant 'performance issue' reported by its French joint operator") hammered Uranium stocks last night.

Decided to take the plunge and buy a 3% position.  For something this risky, its gotta be a small enough position so that it doesn't hurt too much if it halves.   Otherwise I can't stick with it.  This is a "buy and forget" trade.  I want to wake up a few years from now and find we're in a Uranium bubble.

Theres only 2 publicly listed Uranium companies currently producing:

  • Kazatomprom - the world's lowest cost producer in Kazakhstan (LSE:KAP).  Bought 364 GDRs @ USD 31 each. 
  • Cameco - a Canadian mid-cost producer (TSE:CCO).  Bought 570 shares @ 23.83 each

Its risky.  Short term, the knife can keep falling, even if the fears turns out to be false.  After rising so far, these stocks may need a few more more days to shake out weak hands.  Long term, they can go up 3 or 4X if a real Uranium bull market occurs, like in 2007.  They can also drop by 2/3rd if the worst turns out to be true and we get another Fukushima.

(Edit July 2021): Realised Cameco is a mistake, sold it off at a small loss.  Its a barely profitable company, not one that I want to hold when I may have to wait years for a recovery. Sold it off at a tiny loss.

Saturday, May 22, 2021

Does Paper Gold hedge against stock market corrections?

Gold is an unprintable zero-yield currency.  So it should do well when real interest rates fall, or when they are expected to fall.  Like in a stock market correction.  Lets check the behaviour of GLD in past corrections.

Since GLD's history only goes back to 2004, we start in 2008.  The chart below covers the the 17-month bear market from Oct 2008 to Mar 2009.  S&P 500 (the purple line) was down 55%, while GLD (the candlesticks) was up 40%.

It wasn't smooth. GLD had a vicious 7-month 1/3rd drawdown, followed by a swift 4-month 50% recovery, bringing it back to where it started the drawdown. 

Why did it fall?  Interest rates were falling throughout this period, but there was a pause from May to Sept 08, corresponding to GLD's fall:

Source: MacroTrends Federal Funds Rate - 62 year historical chart

Flat rates would have stopped gold rising, but why did it fall?  Probably due to the panic, with funds needing to liquidate anything they could.  No one knows, but the important thing is that it did.  How would you buy-and-hold or trade through this?

Next we have a series of smaller corrections.

  • A brief two-month 16% S&P 500 correction from May-June in 2010, shown by the dotted rectangle below.  GLD up ~3%.  Its too short a time for the chart to mean anything.  And this was within a wider multi-year gold bull market.
  • A more substantial 5-month 19% S&P 500 correction from May-Sept in 2011.  GLD was up 4%.  We can see GLD's big spike as the stock market corrects, but GLD's final red candle has it falling 9% in a week.  Excluding this fall, GLD was up 13%. 
  • Again, we can see how hard it is to trade or buy-and-hold.
  • After the above spike, gold entered a 7 year bear market.  We only get one stock market correction in this time, 3-month correction from Nov 2015 to Jan 2016.  GLD exploded when the market dived:
  • The 3 month 2018 bear market from Sept to Dec 2018.  GLD was up 3-4%, and a lot less volatile than the S&P 500 which was down 20%:

  • With hindsight, the above was the beginning of a new bull market in gold.  Which we may still be in now.
  • GLD fell with everything else in the 2020 crash.  It was down 7% vs the S&P's 33%.   With a maximum drawdown of 8%, it held up ok.


On average, GLD has risen during small corrections.  But not during large bear markets or liquidity crises.

I'm expecting a short correction in the second half of this year.  Like 2018 or 2015-16.  I'm thinking of going long gold.  The odds are on your side if you buy gold before a (brief) downturn.  But the charts above give some idea of the risks involved.  2015-2016 in particular shows how dangerous it can be to be early.

Friday, May 21, 2021

Selling My Trading Account

I'm now selling my trading account which made up around 15% of my assets:

I'm selling now because:

  • Hedgeye sees quad 4 next quarter.
  • Money inflows from the Treasury General Account will stop.
  • The market is too frothy.  Every man and his dog is in.  Shitcoins are flying as crypto will "change to world".  Headlines proclaim "Copper is the new oil"...where were all these guys in 2020?

Think I've got another month to sell.  Then I look to buy gold to benefit from falling growth.  Don't know how long that trade would last.

Longer term, I think the correction will be short, like Dec 2018.  I want to be in the market again.  Still in commodities for higher inflation.  I'm looking for new targets, plus sticking with the old ones:

  • Copper again, for electrification.
  • Aluminium, copper's only substitute.  It also increases energy efficiency (lightweight).
  • Oil.  Rising energy prices are the definition of inflation.  
  • Fertiliser, rising crop prices mean more planting for next year's harvest.
  • Maybe palm oil, it takes 4 years for newly planted trees to bear fruit.
  • Battery metals are tough, they are prone to substitution.
  • Met Coal.  Probably US based, to support infrastructure spending and re-indistrialization there.  Australian listed coal producers have too much thermal exposure.
  • Maybe evil thermal coal?  Would favour Indonesian producers, as they have a strong domestic market (unlike the US or Oz) and are best placed to export to Asia & India.
  • Uranium is hard to place bets on.  The small caps are losing money, and Cameco is too tame.
  • Crypto.  I like ETH, but they are losing market share from high fees and a clogged network.
Basically anything that can't be grown too fast or printed.

Wednesday, April 21, 2021

Sold ADP and AENA

 ADP has been showing signs of distribution in the past month.  Falling prices on higher volume:

It could be due to India's covid situation.  But when reading charts: "Ours is not to wonder why".  

Normally I could ignore little wobbles in a company's share price.  But I think the bull market is coming to an end.

Source: Hedgeye, Jonesy's twitter

For AENA, it was a close decision on whether to let this stock go or hold it long term for dividends.  Its got a decent yield, monopoly position, and could survive a Eurozone breakup.  But I have enough dividends to live off, and it doesn't have enough growth potential - with a 5% yield while paying out 100% of their 2019 earnings.  I need more dry powder for the next cycle.

Sold 300 shares of ADP @ 101.10.  Profit SGD 8.8K, or 22% over 6 months.  And 210 shares of AENA @ 134.25.  Profit ~ SGD 5.1K, or 12%.

As a "covid recovery" trade, they've been disappointing.

Friday, March 5, 2021

Fibra Macquarie

Mexico has good demographics and its low-cost manufacturing should benefit from the China trade war and NAFTA (h/t Peter Zeihan).  So I've been digging around for Mexican Industrial REITS.

Basics on Mexico

The only things I know about Mexico are from TV.

So let's starts at the beginning.

Inflation: Mexico has had bouts of high inflation.  

Although its now under control, the steady inflation rate of 3-5% is higher than developed countries.  Since everyone in Mexico has experienced inflation, most rental leases are either tied to the CPI or in USD.  So peso inflation is not directly an issue for investors.  But when you see a peso denominated rate-of-return (interest rate or cap rate), mentally deduct 3-5% from it to account for inflation.  Mexico's official interest rate is 4%.

Property rights: foreigners can own freehold property, except perhaps up to 50km from the coastline or 100km from the border.

Crime: the drug war started in the 90's and has worsened since the Cartels splintered.  The level of violence is like something out of a movie and is unimaginable by people living in Asia/Europe.  Sometimes powerful gangs are welcomed as law enforcement.  The government does not control some areas of the country.

Fibra Macquarie

Properties,  Tenants and Leases

Fibra Macquarie has around 230 industrial and retail properties throughout Mexico:

Mostly industrial.  In 2020, 82% of the revenue and 88% of Net Operating Income (NOI) was from Industrial.  From the above map, around 1/3 to 1/2 of the industrial properties (by GLA) are near the US border.  They don't have much in Mexico city. 

83% of their NOI is denominated in USD.  98% of industrial leases are triple net (p13).  Over 70% of their industrial tenants are light manufacturing (p18).  38% are from automotive (p10).  This is a play on NAFTA, not e-commerce.

Fibra Macquarie did not list their properties or tenants in their annual report.  Their website has a browse properties page, but only shows vacant ones.  I probably can't evaluate 200+ Mexican industrial properties anyway.  Theres some talk of their properties being older than other REITs - the average age of its industrial building is said to be 15 years (p70).

The scant information I have on their tenants is from their 2019 Annual Report: the largest industrial tenant accounted for 3.9% of industrial rent.  The top 10 largest tenants contributed 25.8% of industrial rent.  Most REITs list their top 10 tenants proudly, but its strange I couldn't find any here.  What are they hiding?

WALE is short at 3.5 years.  Management stated that for leases expiring next year, current rent and market rent is similar, and they are not expecting any change (40:10).

Management and Incentives

The REIT is managed by an external party (Macquarie México Real Estate Management), who owns 4.8% of the units.  They get paid (p273 in Adobe Acrobat):

  • 1% of the REIT's market cap, annually.  
  • Plus an additional bonus of 10% of the amount of "total return based on market cap" (over a 5% hurdle plus inflation rate), payable every two years.
The first is OK, but not great.  The fee is reasonably cheap.  I thought it may encourage reckless issuing of units to fund dilutive expansion.  But this has not happened - they have instead bought back units over the past 5 years.

The second is OK, since it based on market cap.  As I read it: excluding issuances and buybacks of units and dividends.  Its reasonably aligned with shareholders.

As a plus, they are not paid any extra for making new leases, construction, acquisitions or disposals.

Overall, their administration fees are reasonable, aligned with shareholders, and easy to understand.

Mexican Fibras generally have high management fees and complex/distorted incentives:

Cashflows, FFO and AFFO

FFO is usually lower than CFO:

To get AFFO, they subtract future (non-cash) costs  from FFO.  Around 14-20%.  Mostly for property maintenance or improvements, with a little for leasing commissions and platform costs. Straight line rent is negligible:

The terms are defined on slide 39 here:

Source: 4Q2020 Supplementary Information, slide 39

In summary, they are generating cash, and provisioning 14-20% of their FFO.

Pipeline and Growth

Their last big property purchase was announced in 2016.  Since then, growth has come from expansions and redevelopment (p27):

The 11.6% cap rate sounds really high.  Maybe we should mentally deduct 3-5% from it, I'm not sure.

Management stated that they expect to be able to add 1 to 1.5m GLA a year, funded via retained FFO, new loans and opportunistic asset sales (34:50).  Thats an increase in GLA of 2.5 to 4% a year.

Seems like they continue with their slow, low-risk growth strategy of "extend and redevelop".


Net LTV is 36.4%.  Their Regulatory LTV is slightly lower at 35%.4% (p35).  The maximum is 50%.

All their loans are fixed (p36).  Some use properties as collateral: 30% of their properties are encumbered.    97% of their loans are USD.  The interest rate is pretty high, averaging over 5%.

A lot of their loans expire in 2024 (p34), loan expiry is a bit too concentrated:

All their loans are interest only, but they have being slowly paying off debt over the past 5 years.  

Management anticipates debt may rise in future to fund the development pipeline.  Short term, LTV may rise into the low 40s. (34:00).


A big tail risk is a sudden USD depreciation.  71.8% of their leases are denominated in US Dollars.  If the USD was to drop 30-40%, lets say in 2-3 years, their revenue would follow.  Their costs will be the same, except for interest, whoch is the largest cost.  If the USD dropped by 40%, I model that their 2020 operating profit before tax would drop by 40% too.  The company would survive.  The short WALE works in their favour, in this case.

Other risks are:
  • I do not know the quality of the properties or tenants
  • I do not know the property cycles in their local markets.
  • It takes a year or two to build an industrial property, so there is no moat in this business.
  • Mexican political risk.  The drug war.
  • 3D printing disrupting manufacturing.  EVs disrupting automotive.


2020 AFFO was 2.59 pesos per certificate.  Projected 2021 AFFO is 2.27 to 2.32 pesos per certificate.  So at its a price of 26 pesos, its trading around 10 times earnings (AFFO), with a 7% yield (80% AFFO payout ratio).


  • Excellent financials, and cheap.
  • Biggest long term risk is Mexico, especially the drug war. Historically, holding Mexican stocks and pesos has been a losing game.  Maybe this will change.  Like China in 2001.
  • Biggest short term risk is the lease expiries, and I know nothing about their properties or local property cycles.
In the end I bought some, its 5% of my portfolio.


Mexico's Withholding Tax is 10%.   It should be zero for Singapore residents (p7), I'll need to check if Interactive Brokers applies this later.

Other links:

  • Detailed pre-covid 2019 report on Mexican Fibras by BTG Pactual.
  • Short 2014 write up in Value Investors Club (free registration required)

Tuesday, March 2, 2021

Interactive Brokers Margin (Quick Notes)

I've been using IB's margin lending more and more.  Quick notes on how to check the margin requirements.  Because there are too many numbers and I forget.

(Assuming you only trade stocks) To see current margin requirements, in TWS: Account --> Account Window.

There's only 3 numbers I care about:

The key number is "Current Excess Liquidity".  If my account drops by that amount ($214,804), which is  50.5% (of the Net Liquidation Value), then I'm fucked.  IB can force sell my positions.

When putting on a trade, you can check the margin.  Under "advanced", there's "check margin":

This trade would add $15,660 to to my maintenance margin, deducting the same amount from my Current Excess Liquidity.

IB can sometimes change the margin requirements, have to keep a lookout for this.  They last did it during the US election.  

IB has a series of videos explaining margin.