Weiss Korea Opportunity Fund: Half-Yearly Report & Unaudited Financial Statements
19/09/2023 07:00
WEISS KOREA OPPORTUNITY FUND LTD.
LEI 213800GXKGJVWN3BF511
(Classified Regulated Information, under DTR 6 Annex 1 section 1.2)
HALF-YEARLY FINANCIAL REPORT AND UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 JUNE 2023
Company Performance
Performance Summary
As at As at
30 June 2023 31 December 2022
£ £
Total Net Assets (1) 119,364,163 127,080,493
Net Asset Value ("NAV") Per Share (2) 1.72 1.83
Mid-Market Share Price 1.80 1.81
Financial Highlights
As at Since inception
30 June 2023
NAV Return (3,4) -3.4% 116.8% (5)
Benchmark Return (6,7) 6.7% 61.0%
As at As at
30 June 2023 31 December 2022
Portfolio Discount* 53.1% 51.7%
Share Price Premium/Discount (8) 4.5% -1.6%
Fund Dividend Yield (9) 3.0% 3.5%
Average Trailing 12-Month P/E Ratio of Preference Shares Held (10) 4.2x 4.0x
P/B Ratio of Preference Shares Held (11) 0.3 0.3
Annualised Total Expense Ratio (12) 2.1% 2.0%
*Portfolio Discount
The portfolio discount represents the discount of WKOF’s actual NAV to the
value of what the NAV would be if WKOF held the respective common shares of
issuers rather than preference shares on a one-to-one basis.
As at close of business on 18 September 2023, the latest published NAV per
Share was £1.68 and the Share Price was £1.64.
Company Summary
The Company
Weiss Korea Opportunity Fund Ltd. (“WKOF” or the “Company”) was
incorporated with limited liability in Guernsey as a registered closed-ended
investment company on 12 April 2013. The Company’s shares were admitted to
trading on AIM of the London Stock Exchange (the “LSE”) on 14 May 2013.
The Company is managed by Weiss Asset Management LP (the “Investment
Manager” or “WAM”), a Boston-based investment management company
registered with the Securities and Exchange Commission and the Commodity
Futures Trading Commission in the United States of America.
Investment Objective and Dividend Policy
The Company’s investment objective is to provide Shareholders with an
attractive return on their investment, predominantly through long-term capital
appreciation. The Company is geographically focused on South Korean
(“Korean”) companies. Specifically, the Company invests primarily in
listed preference shares issued by companies incorporated in South Korea
(“Korea”), which in many cases trade at a discount to the corresponding
common shares of the same companies. Since the Company’s admission to AIM,
the Investment Manager has assembled a portfolio of Korean preference shares
that it believes are undervalued and could appreciate based on the criteria
that it selects. The Company may, in accordance with its investment policy,
also invest some portion of its assets in other securities, including
exchange-traded funds, futures contracts, options, swaps and derivatives
related to Korean equities, and cash and cash equivalents. The Company does
not have any concentration limits.
The Company intends to return to Shareholders all dividends received, net of
withholding tax, on an annual basis.
Investment Policy
The Company is geographically focused on South Korean companies. Some of the
considerations that affect the Investment Manager’s choice of securities to
buy and sell may include the discount at which a preference share is trading
relative to its respective common share, dividend yield and its liquidity,
among other factors. Not all of these factors will necessarily be satisfied
for particular investments.
Preference shares are selected by the Investment Manager at its sole
discretion, subject to the overall control of the Board of Directors of the
Company (the “Board”).
From time to time, the Company may purchase certain credit default swaps on
the sovereign debt of South Korea and put options on the iShares MSCI South
Korea ETF (“EWY”) as general market and portfolio hedges, but did not
hedge its exposure to interest rates or foreign currencies during the period
ended 30 June 2023 (2022: Nil). Please see additional information about the
nature of these hedges in the Investment Manager’s Report within.
Investment Process
The Investment Manager monitors the discounts and yields on the universe of
Korean preference shares as well as events or catalysts that could affect
preference share discounts leading to material price changes.
Multiple criteria are used to rank and calculate the returns for each
preference share, including but not limited to:
* The discount that the preference share is trading at relative to its common
share
* Expected dividend yield
* Future catalysts or events
* Management quality
* Fundamentals of the company
* Market impact from entering and exiting our position
We expect to remain close to fully invested as long as the opportunity set
remains attractive.
Why South Korea?
The future of the South Korean economy looks promising. The global success of
companies like Hyundai, LG Electronics and Amorepacific stimulates other areas
of the South Korean economy both through the demand for intermediary goods and
the demand for services by the workers at these companies. In addition, South
Korea has emerged as one of the world’s most innovative countries as it:
* Ranked 1st in the Bloomberg Innovation Index for eight of the last nine
years.(13)
* Filed the highest number of patent applications relative to GDP in 2022.(14)
* Has an exceptionally high credit rating on its sovereign debt. South Korea
was rated higher than Japan and the U.K. by Moody’s, S&P, and Fitch.(15)
* Ranked 6th largest exporter in the world in 2022.(16)
* Ranked 13th largest economy by GDP in the world in 2022.(17)
* Ranked 5th in the World Bank’s Ease of Doing Business Report in 2020.(18)
* Ranked in the top 10% in each of reading, mathematics and science Programme
for International Student Assessment (PISA) test scores in 2018.(19 )
South Korean companies are thus a key part of the value chain in some of the
world’s most exciting industries, such as electric vehicles, 5G technology
and smartphones. The country also boasts a high GDP per capita, one of the
lowest government debt/GDP ratios of any country, large foreign exchange
reserves, and low levels of unemployment.
Although its population is ageing, the general education level of South
Korea’s work force is increasing. South Korean students are among the top
performing students in the Programme for International Student Assessment
tests.(19) This provides a pool of talent that can be tapped for future
growth.
Index Name(20) P/E Ratio P/B Ratio
Nifty Index (India) 20.1 3.5
S&P 500 (US) 20.4 4.3
Nikkei 225 (Japan) 20.5 2.0
FTSE 100 (UK) 10.6 1.7
Shanghai Composite (China) 11.2 1.4
Hang Seng Index (HK) 9.5 1.0
TAIEX (Taiwan) 18.1 2.1
KOSPI 200 (S. Korea) 15.4 0.9
The South Korean stock market appears fundamentally cheap relative to other
equity markets. This cheap valuation can be largely explained by the
historically poor corporate governance displayed by the major South Korean
conglomerates. However, events over the last several years indicate a trend of
awareness and improvements in corporate governance. There has been a large
increase in publicly traded South Korean companies subject to activist demands
in 2023, relative to previous years, with many of these demands coming from
local investors. One underlying thesis of our strategy is that improved
corporate governance will attract more investors to South Korea. The
Investment Manager’s Report sets out some examples of improvements in
corporate governance that have taken place during the most recent six months.
In turn, over time, we believe that this is likely to narrow the discount of
the preference shares held in WKOF’s portfolio, thus increasing the value of
WKOF’s holdings.
Korean Preference Shares
Many of the largest companies in the Korean market issue preference shares in
addition to their common shares. These preference shares are equity shares
that receive the same dividend per share as the voting common shares plus an
additional percentage of the preference shares’ par value per share. In
return for this higher dividend, preference shares are non-voting in normal
circumstances, although they do have voting rights in certain situations. Many
of these preference shares trade at less than half the price of the
corresponding common shares despite receiving a slightly higher dividend
amount as the common shares and, therefore, provide preference shareholders
with relatively higher yields than the corresponding common shares.
The majority of Korean preference shares were issued in the mid-1990s, when
the Korean government pressured chaebols (family-owned Korean conglomerates)
to raise equity and reduce debt within their capital structures. By issuing
non-voting shares, the founders of the Korean companies were able to raise
equity capital without diluting their voting control. The additional payment
as a percentage of par value that preference shares paid out to investors,
albeit nominal today, was sufficiently large relative to the dividends in the
1990s to attract investors. Today, there are 118 Korean preference shares
outstanding with an aggregate market capitalisation of approximately £40
billion.(21,22)
Although preference shares typically do not have voting rights, an economic or
financial model that values equity on the discounted value of future cash
flows would imply that the preference shares of these companies should be
trading at roughly the same price as the corresponding common shares. Further,
preference shares are not associated with over-priced speculative companies;
rather, many of the leading companies in the Korean economy have preference
shares outstanding today.
Continued corporate governance improvements, increased dividend payouts and
investor activism continue to serve as catalysts for preference share
discounts narrowing. The Company invests in a portfolio of discounted Korean
preference shares, including Korean market heavyweights such as LG Chem Ltd.,
Hyundai Motor Company, AmorePacific Corp., and LG Electronics Inc.
Top 10 Holdings1. LG CHEM LTD., PFD
16.5% OF WKOF NAV DISCOUNT TO COMMON SHARE: -47%
Korea’s largest chemical company by market capitalisation, LG Chem
manufacturers and sells petrochemical products and advanced materials,
including plastics and EV batteries.(23) Its EV battery business and
subsidiary, LG Energy Solution is the second largest EV battery maker in the
world.(24) In 2022, LG Chem generated over £34bn in revenue globally.(25)
1. HYUNDAI MOTOR COMPANY, 2ND PFD
15.3% OF WKOF NAV DISCOUNT TO COMMON SHARE: -47%
Hyundai Motor Company is one of Korea’s leading car manufacturers by market
share, producing and selling more than 3.9 million units globally in 2022.
Hyundai plans on increasing its presence in the electric vehicle market, while
targeting to sell over 4.3 million units in 2023.(26,27)
1. LG ELECTRONICS INC., PFD
10.4% OF WKOF NAV DISCOUNT TO COMMON SHARE: -57%
LG Electronics is a household brand in home appliances, with various product
lines including washing machines, televisions, refrigerators, and smart
phones. According to market research firm Omdia, the company ranked second
globally in terms of TV market share in 2022, capturing 16.7% of global TV
sales.(28)
1. HANWHA CORPORATION 3RD PFD
7.1% OF WKOF NAV DISCOUNT TO COMMON SHARE: -50%
Hanwha Corporation specialises in producing and trading chemicals, aerospace &
defence products, and energy products. It also deals in the construction and
financial services industry. A Fortune Global 500 company, Hanwha
Corporation’s subsidiaries include Korea’s oldest life insurance company
and Hanwha Solutions, a leading domestic manufacturer of solar cell
panels.(29)
1. MIRAE ASSET DAEWOO CO., LTD., 2ND PFD
5.6% OF WKOF NAV DISCOUNT TO COMMON SHARE: -49%
Mirae Asset Daewoo is a South Korean financial services firm offering
securities trading, equity underwriting, investment banking services, and
wealth/asset management. It conducts business globally, including the United
States, Canada, United Kingdom, and China.(30)
1. AMOREPACIFIC CORP., PFD
5.5% OF WKOF NAV DISCOUNT TO COMMON SHARE: -68%
Amorepacific develops beauty and cosmetic products while operating over 30
brands, including Etude and Laneige. Amorepacific’s portfolio of products
ranges from perfume to dental care, including a premium tea brand.(31)
1. CJ CHEILJEDANG CORP, PFD
5.4% OF WKOF NAV DISCOUNT TO COMMON SHARE: -50%
CJ CheilJedang is a leading food company in Korea, focused on processing food
ingredients into groceries such as refined sugar, flour, and processed meats.
The company also operates a number of food brands that specialise in home meal
replacements and snacks, including names like Bibigo and Petitzel. CJ
CheilJedang also operates in the bio industry and produces plant-based protein
and amino acids.(32)
1. LG HOUSEHOLD & HEALTH CARE LTD., PFD
3.3% OF WKOF NAV DISCOUNT TO COMMON SHARE: -59%
LG Household & Health Care operates within a number of industries, spanning
from cleaning products to beauty care. Beginning with an acquisition of
Coca-Cola’s Korea bottling operation in 2007, LG Household & Health Care
also established a beverage business segment, which now includes the
distribution of tea, coffee, and juices.(33)
1. DOOSAN FUEL CELL CO., LTD., 1P
3.3% OF WKOF NAV DISCOUNT TO COMMON SHARE: -70%
One of the largest fuel cell manufacturers by market capitalisation, Doosan
Fuel Cell produces and sells stationary fuel cell products globally. The
company is focused on sustainable electricity and heat generation. Its
products are targeted towards residential, commercial, and industrial use.(34)
1. SK CHEMICALS CO., LTD., NEW PREF
3.2% OF WKOF NAV DISCOUNT TO COMMON SHARE: -53%
SK Chemicals focuses on the production of environmentally friendly materials
and life science products. Green chemicals include bio-based material used in
the production of polyurethane, as well as amorphous resin for containers and
home appliances.(35) Its life science segment spans treatments for the common
cold to asthma treatments.
Chair’s Report
For the period ended 30 June 2023
As mentioned in the 2022 Annual Report Chair’s Report, Norman Crighton has
stepped down as Chair of WKOF, having served for 10 years. The Directors and
Investment Manager would like to thank him for his efforts and dedication and
wish him all the best in his future endeavours.
As the new WKOF Chair, I am pleased to provide the 2023 Interim Report. During
the period from 1 January 2023 to 30 June 2023 (the “Period”), WKOF’s
Net Asset Value (“NAV”) in pounds sterling (“GBP”) declined by 3.4%,
including reinvested dividends,(36) compared to the reference MSCI South Korea
25/50 Net Total Return Index (“the Korea Index”),(37) which appreciated by
6.7% in GBP. Since the admission of WKOF to AIM in May 2013, the Net Asset
Value has increased by 116.8% including reinvested dividends(38) compared to
the Korea Index returns of 61.0%, a cumulative outperformance of 55.8% since
inception.
Although the short-term absolute and relative performance has been
disappointing – and your Investment Manager provides more detail in their
report relating to this recent underperformance – the long-term performance
is impressive with an annualised return of 7.9% since inception. The Board
believes that the portfolio discount and the overarching WKOF thesis remains
compelling. The “see through” discount of the portfolio (the weighted
average discount of the preference shares WKOF owns relative to the
corresponding common shares of the same companies) was at 53.1%, close to the
largest discount since WKOF joined AIM over 10 years ago. WKOF owns securities
of companies which, in aggregate, have solid businesses in their industries,
healthy balance sheets, and are making positive corporate governance
improvements.
The Directors declared an interim dividend of 5.3517 pence per Share on 2 May
2023, equating to a 3.0% net dividend yield over the past 12 months, to
distribute the income received by WKOF in respect of the year ended 31
December 2022. This dividend was paid to all Shareholders on 9 June 2023. To
date, WKOF has repurchased 12.6% of Ordinary Shares issued at admission and
continues to have the intention to repurchase shares if they trade at a
significant discount to Net Asset Value in the future. The share price traded
in line with the NAV over the period and no shares were repurchased in the
period.
WKOF offers Shareholders the regular opportunity to elect to realise all, or a
part, of their shareholding in WKOF (the “Realisation Opportunity”) once
every two years, on the anniversary of WKOF’s admission date. The latest
Realisation Opportunity occurred in May 2023. We were pleased to see that only
41,496 shares were tendered (0.06% of WKOF’s shares). The Directors wish to
thank our Shareholders for their patience and long-term perspective as
evidenced by the limited number of shares tendered.
I look forward to communicating with you about WKOF’s activities in the
future including the continued efforts to maintain the highest governance and
regulatory standards. If any Shareholder wishes to speak with the Board,
please contact our Broker, Singer Capital Markets, and we will be happy to
answer any questions you may have.
Krishna Shanmuganathan
Chair
15 September 2023
Investment Manager’s Report
For the period ended 30 June 2023
On a year-to-date basis as at June 2023, WKOF’s NAV in GBP declined by 3.4%,
including reinvested dividends,(38) compared to the reference MSCI South Korea
25/50 Net Total Return Index,(37) which appreciated by 6.7% in GBP.(37) Since
inception, the NAV performance to 30 June 2023, including reinvested
dividends, was +116.8%, continuing to outperform relative to the Korea Index,
which returned +61.0% over the same period.
As displayed in the performance attribution table below, the underperformance
of the underlying common shares of the companies owned by WKOF as compared to
the top positions by index weight in the Korea Index, contributed to 10.4% of
WKOF’s underperformance in the period ended 30 June 2023. This can partially
be explained by the significant share price increases of memory semiconductor
manufacturers, Samsung Electronics (“SEC”) and SK Hynix (“Hynix”),
relative to the index as part of the sentiment-driven global AI rally. SEC’s
common shares, which made up approximately 35.2% of the Korea Index, returned
19.8% in GBP, while Hynix’s common shares, which made up approximately 5.9%
of the Korea Index, returned 40.6% in GBP.(21) At present, WKOF does not have
a position in SEC’s preference shares as they trade at very narrow discounts
and are thus inconsistent with WKOF’s investment thesis. WKOF also does not
hold a position in Hynix because Hynix has not issued a series of preference
shares. These are noteworthy examples offered due to their prominence in the
Korea Index and the magnitude of their performance. However, we caution
investors that there are many other differences in composition between
WKOF’s portfolio and the portfolio of the Korea Index and note that these
are only two reasons that a security may be included in the Korea Index but
excluded from WKOF’s portfolio.
WKOF Performance Attribution
At the end of June 2023, WKOF held a portfolio of 35 South Korean
(“Korean”) preference shares. As a reminder, the economic rights of Korean
preference shares are generally the same or slightly better than the
corresponding common shares, yet the preference shares often trade at
substantial discounts to the common shares. WKOF’s returns, on a
currency-neutral basis, are driven by five primary factors:
* The performance of the Korean equity market generally;
* The performance of the common shares (which correspond to the preference
shares held by WKOF) relative to the performance of the Korean equity market;
* The discounts of the preference shares WKOF holds narrowing or widening
relative to their corresponding common shares;
* Excess dividend yields of the preference shares held by WKOF; and
* Fees, expenses and other factors.
In order to compare WKOF’s relative return to the Korea Index, we report the
attribution of these aforementioned factors to WKOF’s performance. The
following table provides this performance attribution for the last 12 months
and for the period since the inception of WKOF in May 2013 to 30 June 2023.
Performance Attribution Table
Return Component(20) Year-to-Date Last 12 Months Since Inception
The Korea Index 6.7% 6.6% 61.0%
WKOF common Shares vs the Korea Index -10.4% -10.0% -14.1%
Discount Narrowing (Widening) of Preferred Shares Owned 0.8% 0.4% 63.7%
Excess Dividend Yield of Preferred Shares Owned 1.3% 1.4% 16.4%
Fees, Expenses and Others -1.8% -1.5% -10.2%
NAV Performance -3.4% -3.1% 116.8%
WKOF’s investment thesis at inception was based on the likelihood that
WKOF’s NAV would perform well, largely due to (i) decreases in the large
discounts of the preference shares held by WKOF relative to their
corresponding common shares and (ii) the related excess dividend yields caused
by these large discounts. This has, indeed, generally been the case as these
two factors have collectively been the main contributors to WKOF’s
outperformance relative to the Korea Index since inception. At present, we
remain confident in both of these theses.
In September 2013, shortly after inception, the preference shares held by WKOF
traded at a 55.5% discount to their corresponding common shares and the
dividend yield was 1.7%. As at 30 June 2023, the discount and dividend yield
were 53.1% and 3.0%, respectively. Finally, we are focused on returns since
inception because we believe that due to high levels of idiosyncratic
volatility, any data that is gathered over a one-year period is unlikely to be
a reliable guide for future performance.
Review of the South Korean Macro Environment
In the first half of 2023, the performance of Korean equity markets materially
outpaced the country’s recovery in broader economic conditions.
On a year-to-date basis ending 30 June 2023, the benchmark Korea Index
returned 14.4% and the KOSPI 200 Index returned 16.1%.(21) To contextualise
these returns, Korea was one of the best performing markets in Asia alongside
Taiwan and Japan.(39) Looking into daily trade flow and volume, foreign
investors were the largest net buyers, accumulating more than 12.3 trillion
KRW net in the first half of 2023, according to the Korea Exchange.(40)
However, unlike previous market cycles, the stock market gains were not evenly
distributed across a wide range of sectors. While the information technology
(including memory semiconductors) and materials (including EV batteries and
other materials) sectors outperformed the Korea Index, the utilities,
healthcare, financials, and consumer staples sectors generated negative
returns. Foreign net buying was also concentrated in select sectors and names.
For instance, out of the 12.3 trillion KRW in net buy flow by foreigners,
12.08 trillion KRW (roughly 98%) was focused on one issuer: Samsung
Electronics.(41)
More broadly, the South Korean economy finally began to exhibit signs of a
rebound during the second quarter of 2023. Korea’s exports posted a
meaningful rise during the final two months of the quarter, even escaping a
trade deficit for the first time since February 2022.(42) The improvement in
the balance of trade was led by trade exports, which grew 7.9% and 13% in
month-over-month terms in May and June, respectively.(43)
Focusing exclusively on rebounding exports and the surge in a few risk asset
prices, however, would present an incomplete view of the South Korean economy.
As Governor Rhee noted at the most recent Bank of Korea Monetary Policy Board
meeting on 13 July 2023, other macroeconomic indicators still require careful
attention, such as persistent high core CPI inflation and significant
household debt.(44) For instance, while year-on-year CPI increases moderated
to 2.7% in June 2023 from a high of 6.3% in July 2022, core CPI increases
remained in the 4% range in June 2023 from a high of 5% in January 2023,
according to Statistics Korea.(45) Household debt remains at 103% of GDP,
which is an area that the Bank of Korea is “closely monitoring”.(46)
Housing price trends are another significant economic factor for investors in
Korea to monitor. Korean households generally have a high exposure to property
assets given that a significant percentage of household debt can be attributed
to jeonse, which is a rental arrangement where tenants provide an
interest-free loan to landlords instead of monthly rents. According to the
Korea Economic Research Institute, jeonse, if counted as household debt, would
account for 36% of all Korean household debt in 2022.(47) Property market
shocks therefore would introduce volatility in overall household balance
sheets.(48) For these reasons, we monitor changes in nationwide housing
prices, which have dropped 8.6% from June 2022 to June 2023, according to the
Real Estate Board in Korea.(49)
To be clear, WKOF is not a macro fund, and consequently, this information is
offered solely to help characterise WKOF’s performance relative to the
market in which it is most active.
Valuation of Major Indices(21)
Index Name P/E Ratio P/B Ratio Dividend Yield
Nifty Index (India) 20.1 3.5 1.4%
S&P 500 (US) 20.4 4.3 1.6%
Nikkei 225 (Japan) 20.5 2.0 1.8%
FTSE 100 (UK) 10.6 1.7 4.2%
Shanghai Composite (China) 11.2 1.4 2.7%
Hang Seng Index (HK) 9.5 1.0 3.8%
TAIEX (Taiwan) 18.1 2.1 4.1%
KOSPI 200 (S. Korea) 15.4 0.9 1.9%
WKOF Portfolio Holdings(50) 4.2 0.3 3.0%
South Korean equities and the portfolio holdings of WKOF continue to offer
apparent valuation discounts relative to other countries’ equity markets as
represented by the price-to-earnings ratios (“P/E ratios”) and
price-to-book ratios (“P/B ratios”) listed above.
As previously discussed, WKOF’s current portfolio discount of the preference
shares it owns relative to the corresponding common shares was 53.1%. In
addition, the KOSPI 200 has depressed valuation multiples as shown above
relative to the average of other major indices.
Portfolio Discussion
In this section, we will discuss WKOF’s two largest positions by portfolio
weight, highlight what we believe are compelling valuations and provide
examples of what we believe to be shareholder-friendly activity that could
potentially serve as catalysts for narrowing preference share discounts over
time.
WKOF’s portfolio discount changed from 51.7% at the end of December 2022 to
53.1% by 30 June 2023, as we rotated the portfolio to sell tighter discount
names and buy wider discount names. We believe these levels present an
attractive risk/reward profile when considering corporate governance risk or
broad market multiples such as P/B or P/E.
The largest position by portfolio weight was WKOF’s position in the
preference shares of LG Chem (“LGC”). As we discussed in previous
correspondence, the preference shares of LGC appear cheap not only in terms of
preference discounts, but also because of the large discount to NAV of the
common shares of LGC itself due to LGC’s 81.8% listed stake value in the
world’s second largest battery cell maker, LG Energy Solution
(“LGES”).(51,52) As of 30 June 2023, LGC’s common shares were trading at
a roughly 60% NAV discount and LGC’s preference shares were trading at a
further 47% discount to the common shares.(21)
LGC is also undertaking initiatives that appear designed to demonstrate the
value of its LGES stake to investors. For instance, on 12 July 2023, LGC
decided to raise GBP £1.5 billion by issuing bonds exchangeable for LGC’s
LGES shares. The exchangeable bonds were issued at maturity interest rates of
1.25% and 1.6% for the five-year and seven-year bonds, respectively.(53) We
are hopeful that continued use of LGC’s stake in LGES in this manner will
tend to reduce the substantial discount at which the LGES preference shares
trade relative to LGES’ common shares.
As of 30 June 2023, the second largest position by portfolio weight was the
preference shares issued by Hyundai Motors (“HMC”), which was also the
case as of year-end 2022. In April 2023, HMC updated its shareholder return
policy with two material changes that we view as shareholder friendly.(54) HMC
increased visibility into its dividend plan by stating that it will start
paying out quarterly dividends, a practice also employed by Samsung
Electronics, and will start using a minimum payout ratio of 25% of its net
profit as opposed to its prior practice of 30-50% of free cash flow.(55) HMC
expressed that the impetus behind this change stems from the request from
shareholders to address the difficulty in accurately projecting consolidated
free cash flow of HMC due to its financial subsidiary, HMC Capital, which
provides auto financing for HMC consumers among other financial services.(56)
In addition to increasing dividend visibility, HMC committed to share
repurchase plans for both common and preference shares.
The average discount of HMC’s preference shares relative to its common
shares tightened during April 2023 from 49% at the beginning of the month to
46% but, by 30 June 2023, the first series of HMC’s preference shares had
widened slightly to a 47% discount. That having been said, this is wider than
historical five-year average levels.(21) In addition, based on local sell-side
analysts’ estimates of HMC’s full-year dividend per share, as of 30 June
2023 the first series of preference shares traded at a forward yield of
9%.(57)
Korean Corporate Governance
As we noted in the 2022 Annual Report, we continue to observe early but
positive signs in the realm of corporate governance in South Korea. The source
of activist demands, volume of requests and success rates of adding board
members to target boards all appear to exhibit positive directionality. We
have also witnessed the Korean government more actively pursuing corporate
governance reforms as described later in the report.
Much of the support in favour of reform is now originating within Korea,
particularly from domestic activist funds and the Korean government. This is
new, as historically such support mostly arose from non-Korean investors and
organisations which were ineffectively attempting to exert
shareholder-friendly pressure. According to Insightia, which publishes regular
reports on the state of shareholder activism in Asia, approximately 75-80% of
activism campaigns launched in South Korea in 2022 were “by funds based in
Korea or run by Korean fund managers,” which is an increase from the 60%
Insightia reported for 2019.(58) We believe this dynamic is likely to make
companies more agreeable to positive reforms.
We are also encouraged by the volume and success of activist campaigns seeking
to add board members to the boards of targeted companies. The absolute number
of campaigns increased more than 480% from 2019 to 2022. The success of these
campaigns is also increasing; in 2020, no activists were successful in putting
one or more of their nominees on the target company’s board, whereas in
2022, 10 campaigns succeeded on this measure.
Finally, during the first half of 2023, the Korean government put forward two
proposals which we believe could be positive for Korean preference shares.
One specific proposal that is being discussed by the Korean legislators is
reconsidering to whom the board of directors has fiduciary duties. Currently,
Article 382-3 of the Commercial Act in Korea states that the directors have a
fiduciary duty towards “the company”.(59) There are currently at least two
proposed changes to this language being discussed in the National Assembly in
2023, and both proposals suggest that the language be amended to include all
“shareholders”.(60) If the Commercial Act Article 382-3 is revised
accordingly later in the year, the implications are likely to be positive for
minority shareholders in Korean companies.
Secondly, in January 2023, the nation’s top financial regulator, the
Financial Services Commission (“FSC”), put forward a draft plan to improve
the dividend pay-out process of Korean companies.(61) In Korea, dividend
amounts are disclosed after the ex-date of dividends, which effectively
precludes shareholders from knowing the per-share dividend before becoming
eligible to receive dividends. The plan of the FSC, although not finalised
yet, is to allow shareholders to know the indicative dividend per share before
the ex-date, thereby giving investors optionality to purchase shares with
attractive dividend yields. If successfully implemented, the draft plan would
be directly relevant for preference shareholders, as preference shares trading
at material discounts to their corresponding common shares generate relatively
larger dividend yields.
Hedging
WKOF pursues its investment strategy with a portfolio that is generally
long-only. However, as further described in WKOF’s Annual Report and Audited
Financial Statements for the year ended 31 December 2017 and in subsequent
Annual Reports, the Board approved a hedging strategy intended to reduce
exposure to extreme events that would be catastrophic to its Shareholders’
Investments in WKOF because of political tensions in Northeast Asia.
WKOF has limited its use of hedging instruments to purchases of credit default
swaps (“CDS”) and put options on the MSCI Korea 25/50 Index – securities
that we believe would generate high returns if Korea experienced geopolitical
disaster – which do not introduce material new risks into the portfolio.
These catastrophe hedges are not expected to make money in most states of the
world. We expect that, as with any insurance policy, WKOF’s hedges will lose
money most of the time. The table below provides details about the hedges as
of 30 June 2023. Note that outside of the general market and portfolio hedges
described herein, WKOF has generally not hedged interest rates or currencies.
Credit Default Swaps (“CDS”) on South Korean Sovereign Debt Notional Value (GBP) Total Cost to Expiration (GBP) Annual Cost (GBP) Price Paid as a % of Notional Value (per annum) Expiration Date Duration (Years)
3-year CDS 79,242,440 (567,525) (175,548) 0.23% 6/20/2025 3.0
Concluding Remarks
It has been a frustrating 18+ months of performance for WKOF, and we wish to
express our thanks to our long-term shareholders for their patience. While
WKOF could experience periods of potentially significant under-performance in
the future, it is our belief the original investment thesis for WKOF continues
to exist at present.
Despite long-term outperformance of WKOF versus its benchmark, the preference
shares that WKOF owns remain at deeply discounted levels relative to their
common share counterparts, similar to when WKOF was listed approximately 10
years ago. This, in turn, creates an attractive relative dividend yield for
the securities WKOF owns so shareholders are compensated for waiting for
discounts to narrow. As highlighted in the report, we also believe a number of
companies whose preference shares WKOF owns, are demonstrating their
willingness to engage in shareholder-friendly activity and highlight the value
of the assets they own, sometimes at steep discounts to those assets’ NAVs.
Finally, while progress has been achingly slow, the corporate governance
regime in Korea appears to be improving at last.
We believe these long-term trends continue to make WKOF an attractive
investment opportunity for long-term, value-oriented shareholders.
Weiss Asset Management LP
15 September 2023
Condensed Statement of Financial Position
As at 30 June 2023
As at As at
30 June 31 December
2023 2022
(Unaudited) (Audited)
Notes £ £
Assets
Financial assets at fair value through profit or loss 10 117,693,983 120,764,446
Other receivables 361,971 4,598,722
Due from broker 63,474 -
Margin account 312,568 1,327,313
Cash and cash equivalents 2,554,883 2,890,620
Total assets 120,986,879 129,581,101
Liabilities
Derivative financial liabilities 11 1,109,294 1,145,453
Other payables 513,422 1,355,155
Total liabilities 1,622,716 2,500,608
Net assets 119,364,163 127,080,493
Represented by:
Shareholders' equity and reserves
Share capital 12 33,912,856 33,986,846
Other reserves 85,451,307 93,093,647
Total Shareholders' equity 119,364,163 127,080,493
Net Assets Value per Ordinary Share 7 1.7233 1.8336
The Notes form an integral part of these Condensed Financial Statements.
The Condensed Financial Statements were approved and authorised for issue by
the Board of Directors on 15 September 2023.
Krishna Shanmuganathan
Gill Morris
Chair
Audit Chair
Condensed Statement of Comprehensive Income
For the period ended 30 June 2023
For the period ended For the period ended
30 June 2023 30 June 2022
(Unaudited) (Unaudited)
Notes £ £
Income
Net changes in fair value of financial assets at fair value through profit or loss 8 (1,851,203) (34,996,104)
Net changes in fair value of derivative financial instruments through profit or loss 9 36,181 959,892
Net foreign currency (losses)/gains (486,385) 487,824
Dividend income 392,104 445,389
Bank interest income 9,801 -
Total loss (1,899,502) (33,102,999)
Expenses
Operating expenses (1,947,468) (1,863,490)
Total operating expenses (1,947,468) (1,863,490)
Loss for the period before dividend withholding tax (3,846,970) (34,966,489)
Dividend withholding tax 3 (86,263) (98,403)
Loss for the period after dividend withholding tax (3,933,233) (35,064,892)
Loss and total comprehensive loss for the period (3,933,233) (35,064,892)
Basic and diluted loss per Share 6 (0.0568) (0.5059)
All items derive from continuing activities.
Following review of the AIC SORP and its impact on the Statement of
Comprehensive Income, the Board has decided not to follow the recommended
income and capital split. This is due to the fact that the Company’s
dividend policy is not influenced by its expense policy. See Company Summary
section for details of the Company’s dividend policy.
The Notes form an integral part of these Condensed Financial Statements.
Condensed Statement of Changes in Equity
For the period ended 30 June 2023
Share Other
capital reserves Total
For the period ended 30 June 2023 (Unaudited) Notes £ £ £
Balance as at 1 January 2023 33,986,846 93,093,647 127,080,493
Total comprehensive loss for the period - (3,933,233) (3,933,233)
Transactions with Shareholders, recorded directly in equity
Purchase of Realisation Shares 12 (73,990) - (73,990)
Distributions paid 4 - (3,709,107) (3,709,107)
Balance as at 30 June 2023 33,912,856 85,451,307 119,364,163
Share Other
capital reserves Total
For the period ended 30 June 2022 (Unaudited) Note £ £ £
Balance as at 1 January 2022 33,986,846 132,554,299 166,541,145
Total comprehensive loss for the period - (35,064,892) (35,064,892)
Transactions with Shareholders, recorded directly in equity
Distributions paid 4 - (4,417,079) (4,417,079)
Balance as at 30 June 2022 33,986,846 93,072,328 127,059,174
The Notes form an integral part of these Condensed Financial Statements.
Condensed Statement of Cash Flows
For the period ended 30 June 2023
For the period ended 30 June 2023 For the period ended 30 June 2022
(Unaudited) (Unaudited)
Notes £ £
Cash flows from operating activities
Loss and total comprehensive loss for the period (3,933,233) (35,064,892)
Adjustments for:
Net change in fair value of financial assets held at fair value through profit or loss 8 1,851,203 34,996,104
Exchange losses/(gains) on cash and cash equivalents 1,147,298 (487,824)
Net change in fair value of derivative financial instruments held at fair value through profit or loss 9 (36,181) (959,892)
Increase in receivables excluding dividends (18,444) (18,869)
Increase/(decrease) in other payables excluding withholding 92,894 (141,026)
tax
Dividend income (305,841) (346,988)
Dividend received 3,626,410 3,938,692
Purchase of financial assets at fair value through profit or loss (9,766,020) (5,198,292)
Proceeds from the sale of financial assets at fair value through 10,921,807 7,689,890
profit or loss
Net cash generated from operating activities 3,579,893 4,406,903
Cash flows from investing activities
Opening of derivative financial instruments 20 1,799,402
Closure of derivative financial instruments - (163,217)
Decrease/(increase) in margin account 1,014,745 (1,027,558)
Net cash generated from investing activities 1,014,765 608,627
Cash flows from financing activities
Repurchase of realisation Shares 12 (73,990) -
Distributions paid 4 (3,709,107) (4,417,079)
Net cash used in financing activities (3,783,097) (4,417,079)
Net increase in cash and cash equivalents 811,561 598,451
Exchange (losses)/gains on cash and cash equivalents (1,147,298) 487,824
Cash and cash equivalents at the beginning of the period 2,890,620 3,091,245
Cash and cash equivalents at the end of the period 2,554,883 4,177,520
The Notes form an integral part of these Condensed Financial Statements.
Notes to the Unaudited Condensed Financial Statements
For the period ended 30 June 2023
1. General information
The Company was incorporated with limited liability in Guernsey, as a
closed-ended investment company on 12 April 2013. The Company’s Shares were
admitted to trading on AIM of the London Stock Exchange (“LSE”) on
14 May 2013.
The Investment Manager of the Company is Weiss Asset Management LP.
At the Annual General Meeting (“AGM”) held on 27 July 2016, the Board
approved the adoption of the new Articles of Incorporation in accordance with
Section 42(1) of the Companies (Guernsey) Law, 2008 (the “Law”).
2. Significant accounting policies
a. Statement of compliance
The Condensed Financial Statements of the Company for the period ended 30 June
2023 have been prepared in accordance with IFRS adopted by the European Union
and the AIM Rules of the London Stock Exchange. They give a true and fair view
and are in compliance with the Law.
b. Basis of preparation
The Condensed Financial Statements are prepared in pounds sterling (£), which
is the Company’s functional and presentational currency. They are prepared
on a historical cost basis modified to include financial assets at fair value
through profit or loss.
The Condensed Financial Statements, covering the period from 1 January to 30
June 2023, are not audited.
The accounting policies adopted are consistent with those used in the Annual
Report and Audited Financial Statements for the year ended 31 December 2022.
The Condensed Financial Statements do not include all the information and
disclosures required in the Annual Report and Audited Financial Statements and
should be read in conjunction with the Annual Report and Audited Financial
Statements for the year ended 31 December 2022. The Auditor’s Report
contained within the Annual Report and Audited Financial Statements provided
an unmodified opinion.
The preparation of the Condensed Financial Statements requires management to
make estimates and assumptions that affect the reported amounts of revenues,
expenses, assets, and liabilities at the date of these Condensed Financial
Statements. If in the future such estimates and assumptions which are based on
management’s best judgement at the date of the Condensed Financial
Statements, deviate from the actual circumstances, the original estimates and
assumptions will be modified as appropriate in the period in which the
circumstances change.
c. Going concern
In accordance with the Company’s Articles of Incorporation and its Admission
Document, the Company offers all Shareholders the right to elect to realise
some or all of the value of their Ordinary Shares (the “Realisation
Opportunity”), less applicable costs and expenses, on or prior to the fourth
anniversary of Company’s admission to AIM and, unless it has already been
determined that the Company be wound-up, every two years thereafter, the most
recent being 12 May 2023 (the “Realisation Date”).
On 13 March 2023, the Company announced that pursuant to the Realisation
Opportunity, Shareholders who are on the register as at the record date may
elect, during the Election Period, to redesignate all or part (provided that
such part be rounded up to the nearest whole Ordinary Share) of their Ordinary
Shares as Realisation Shares. The Election Period commenced on 12 April 2023
and closed at 1pm, 5 May 2023. Elections were received from Shareholders
totalling of 41,496 Ordinary Shares, representing approximately 0.06 per cent
of the Company’s issued share capital.
Due to the limited number of elections received for the Realisation
Opportunity, all Realisation Shares were redeemed utilising the Company’s
cash reserves, with an accompanying record date of 26 May 2023.
Based on the fact that the assets currently held by the Company consist mainly
of securities that are readily realisable, whilst the Directors acknowledge
that the liquidity of these assets needs to be managed, the Directors believe
that the Company has adequate financial resources to meet its liabilities as
they fall due for at least twelve months from the date of this report, and
that is appropriate for the Financial Statements to be prepared on a going
concern basis.
3. Taxation
The Company has been granted Exempt Status under the terms of The Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 to income tax in Guernsey. Its
liability is an annual fee of £1,200 (2022: £1,200). The amounts disclosed
as taxation in the Condensed Statement of Comprehensive Income relate solely
to withholding tax levied in South Korea on distributions from South Korean
companies at an offshore rate of 22 %.
4. Dividends to Shareholders
Dividends, if any, will be paid annually each year. An annual dividend of
5.3517 pence per Share (£3,709,107) was approved on 2 May 2023 and paid on
9 June 2023 in respect of the year ended 31 December 2022. An annual dividend
of 6.3732 pence per Share (£4,417,069) was approved on 12 May 2022 and paid
on 10 June 2022 in respect of the year ended 31 December 2021.
5. Significant accounting judgements, estimates and assumptions
The preparation of the Condensed Financial Statements in conformity with IFRS
requires management to make judgements, estimates, and assumptions that affect
the application of policies and the reported amounts of assets and
liabilities, income and expense, and the accompanying disclosures. Uncertainty
about these assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of assets or liabilities affected
in future periods. The significant judgements, estimates, and assumptions made
by management when applying the Company’s accounting policies, as well as
the key sources of estimation uncertainty, were the same for these Condensed
Financial Statements as those that applied to the Annual Report and Audited
Financial Statements for the year ended 31 December 2022.
6. Basic and diluted loss per Share
The total basic and diluted loss per Ordinary Share of £0.0568 (30 June 2022:
£0.5059) for the Company has been calculated based on the total loss after
tax for the period of £3,933,233 (for the period ended 30 June 2022:
£35,064,892) and the weighted average number of Ordinary Shares in issue
during the period of 69,296,302 (for the period ended 30 June 2022:
69,307,078).
7. Net Asset Value per Ordinary Share
The NAV of each Share of £1.7233 (as at 31 December 2022: £1.8336) is
determined by dividing the net assets of the Company attributed to the
Ordinary Shares of £119,364,163 (as at 31 December 2022: £127,080,493) by
the number of Ordinary Shares in issue at 30 June 2023 of 69,265,582 (as at 31
December 2022: 69,307,078 Ordinary Shares in issue).
8. Net changes in fair value on financial assets at fair value through
profit or loss
For the period For the period ended
ended
30 June 2023 30 June 2022
(Unaudited) (Unaudited)
£ £
Realised gain on investments 3,906,098 2,131,698
Realised loss on investments (1,015,368) (1,444,941)
Unrealised gains on investments 10,119,230 -
Unrealised losses on investments (14,861,163) (35,682,861)
Net changes in fair value on financial assets at fair value through profit or loss (1,851,203) (34,996,104)
9. Net changes in fair value on derivative financial instruments at fair
value through profit or loss
For the period For the period ended
ended
30 June 2023 30 June 2022
(Unaudited) (Unaudited)
£ £
Realised gain on options - 272,265
Realised loss on options - (42,589)
Realised gain on credit default swaps - 1,157,384
Realised loss on credit default swaps - (861,537)
Unrealised gain on options - 136,822
Unrealised gain on credit default swaps 36,181 297,547
Net changes in fair value on financial derivatives at fair value through profit or loss 36,181 959,892
10. Financial assets at fair value through profit or loss
As at As at
30 June 31 December
2023 2022
(Unaudited) (Audited)
£ £
Cost of investments at beginning of the period/year 145,672,008 149,112,223
Purchases of investments in the period/year 9,766,020 10,167,914
Disposal of investments in the period/year (10,985,280) (11,810,895)
Net realised gains/(losses) on investments in the period/year 2,890,730 (1,797,234)
Cost of investments held at end of the period/year 147,343,478 145,672,008
Unrealised loss on investments (29,649,495) (24,907,562)
Financial assets at fair value through profit or loss 117,693,983 120,764,446
Financial assets are valued at the bid-market prices ruling as at the close of
business at the Condensed Statement of Financial Position date, net of any
accrued interest which is included in the Condensed Statement of Financial
Position as an income related item. The Directors are of the opinion that the
bid-market prices are the best estimate of fair value in accordance with the
requirements of IFRS 13 ‘Fair Value Measurement’. Movements in fair value
are included in the Condensed Statement of Comprehensive Income.
11. Derivative financial instruments at fair value through profit or
loss
As at As at
30 June 31 December
2023 2022
(Unaudited) (Audited)
£ £
Cost of derivatives at beginning of the period/year (1,835,637) (724,897)
Opening of derivatives in the period/year (20) (1,799,480)
Closure of derivatives in the period/year - 163,217
Realised gain on closure of derivatives in the period/year - 525,523
Net cost of derivatives held at end of the period/year (1,835,657) (1,835,637)
Unrealised gain on derivative financial instruments at fair value through profit or loss 726,363 690,184
Net fair value on derivative financial instruments at fair value through profit or loss (1,109,294) (1,145,453)
The following are the composition of the Company’s derivative financial
instruments at period/year end:
As at As at
30 June 31 December
2023 2022
Assets Liabilities Assets Liabilities
(Unaudited) (Unaudited) (Audited) (Audited)
Derivatives held for trading: £ £ £ £
Credit default swaps - (1,109,294) - (1,145,453)
Total - (1,109,294) - (1,145,453)
12. Share capital
The share capital of the Company consists of an unlimited number of Ordinary
Shares of no par value.
As at As at
30 June 31 December
2023 2022
(Unaudited) (Audited)
Authorised
Unlimited Ordinary Shares at no par value - -
Issued at no par value
69,265,582 (2022: 69,307,078) Ordinary Shares at no par value - -
Reconciliation of number of Shares
As at As at
30 June 31 December
2023 2022
(Unaudited) (Audited)
No. of Shares No. of Shares
Ordinary Shares at the beginning of the period/year 69,307,078 69,307,078
Purchase of Realisation Shares (41,496) -
Total Ordinary Shares in issue at the end of the period/year 69,265,582 69,307,078
As at As at
Treasury Shares 30 June 31 December
2023 2022
(Unaudited) (Audited)
No. of Shares No. of Shares
Treasury Shares at the beginning of the period/year 11,710,747 11,437,662
Prior year adjustment for repurchase of Ordinary Shares 3 -
Redesignation of Realisation Shares 41,496 273,085
Total Shares at the end of the period/year 11,752,246 11,710,747
Share capital account
As at As at
30 June 31 December
2023 2022
(Unaudited) (Audited)
£ £
Share capital at the beginning of the period/year 33,986,846 33,986,846
Purchase of Realisation Shares (73,990) -
Total Share capital at the end of the period/year 33,912,856 33,986,846
Ordinary Shares
The Company has a single class of Ordinary Shares, which were issued by means
of an initial public offering on 14 May 2013, at 100 pence per Share.
The rights attached to the Ordinary Shares are as follows:
1. The holders of Ordinary Shares shall confer the right to all dividends in
accordance with the Articles of Incorporation of the Company.
2. The capital and surplus assets of the Company remaining after payment of
all creditors shall, on winding-up or on a return (other than by way of
purchase or redemption of own Ordinary Shares) be divided amongst the
Shareholders on the basis of the capital attributable to the Ordinary Shares
at the date of winding up or other return of capital.
3. Shareholders present in person or by proxy or (being a corporation) present
by a duly authorised representative at a general meeting have on a show of
hands, one vote and, on a poll, one vote for every Share.
4. On 13 March 2023, being 61 days before the Subsequent Realisation Date, the
Company published a circular pursuant to the Realisation Opportunity,
entitling the Shareholders to serve a written notice during the election
period (a “Realisation Election”) requesting that all or a part of their
Ordinary Shares be re-designated to Realisation Shares, subject to the
aggregate NAV of the continuing Ordinary Shares on the last business day
before the Reorganisation Date being not less than £50 million.
5. On 12 May 2023, 41,496 Ordinary Shares, which represented 0.06% of the
Company’s issued Ordinary Share capital were redesignated as Realisation
Shares.
On 24 May 2023, the Company announced that, due to the very limited number of
elections received for the Realisation Opportunity, all Realisation Shares
were compulsory redeemed utilising the Company’s existing cash reserves,
with an accompanying record date of 26 May 2023 (“Redemption Date”). The
Redemption price was 177.62 pence per Realisation Share, equivalent to the
unaudited Net Asset Value per Realisation Share as at 15 May 2023.
All Realisation Shares that were redeemed have been re-designated as Ordinary
Shares and held in Treasury.
Share buyback and cancellation
During the period ended 30 June 2023, the Company purchased Nil shares (31
December 2022: Nil) of its own Shares at a consideration of £Nil (31 December
2022: £Nil) under its general buyback authority originally granted to the
Company in 2014.
The Company has 69,265,582 Ordinary Shares in issue as at 30 June 2023 (as at
31 December 2022: 69,307,078). The Company has 11,752,246 Treasury Shares in
issue as at 30 June 2023 (as at 31 December 2022: 11,710,750)
At the AGM held on 20 July 2023, Shareholders approved the authority of the
Company to buy back up to 40% of the issued Ordinary Shares (excluding
Treasury Shares) to facilitate the Company’s discount management. Any
Ordinary Shares bought back may be cancelled or held in treasury.
13. Related-party transactions and material agreements
Related-party transactions
a. Directors’ remuneration and expenses
The Directors of the Company are remunerated for their services at such a rate
as the Directors determine provided that the aggregate amount of such fees
does not exceed £150,000 per annum.
The Board increased their fees by £1,500 per Director, per annum effective 1
January 2023. The annual Directors’ fees comprise £36,500 payable to Norman
Crighton as the Chair, £34,000 to Gill Morris as Chair of the Audit Committee
and £31,500 each to Krishna Shanmuganathan and Wendy Dorey. Effective 20 July
2023, Norman Crighton retired from the Board and Krishna was appointed as the
Chair.
During the period ended 30 June 2023, Directors’ fees of £66,750 (period
ended 30 June 2022: £51,250) were charged to the Company and £3,000 remained
payable at the end of the period (as at 31 December 2022: £Nil).
b. Shares held by related parties
The Directors who held office at 30 June 2023 and up to the date of this
Report held the following number of Ordinary Shares beneficially:
As at 30 June 2023 As at 31 December 2022
Ordinary % of issued Ordinary % of issued
Shares share capital Shares share capital
(Unaudited) (Unaudited) (Audited) (Audited)
Norman Crighton 20,000 0.03% 20,000 0.03%
Gillian Morris 3,934 0.01% 3,934 0.01%
Krishna Shanmuganathan - - - -
Wendy Dorey 2,552 0.00% 2,552 0.00%
There have been no changes in the interests of the above Directors during the
period.
The Investment Manager is principally owned by Dr Andrew Weiss and certain
members of the Investment Manager’s senior management team. As at 30 June
2023, Dr Andrew Weiss and his immediate family members held an interest in
7,316,888 Ordinary Shares (as at 31 December 2022: 7,010,888) representing
10.56% (as at 31 December 2022: 10.12%) of the Ordinary issued share capital
of the Company.
As at 30 June 2023, employees and partners of the Investment Manager other
than Dr Andrew Weiss, their respective immediate family members or entities
controlled by them or their immediate family members held an interest in
390,408 Ordinary Shares (as at 31 December 2022: 3,594,333) representing 0.6%
(as at 31 December 2022: 5.19%) of the Ordinary issued share capital of the
Company.(62)
c. Investment management fee
The Company’s Investment Manager is Weiss Asset Management LP. In
consideration for its services provided by the Investment Manager under the
Investment Management Agreement (IMA) dated 8 May 2013, the Investment Manager
is entitled to an annual management fee of 1.5 % of the Company’s NAV
accrued daily and payable within 14 days after each month end. The Investment
Manager is also entitled to reimbursement of certain expenses incurred by it
in connection with its duties.
The IMA will continue in force until terminated by the Investment Manager or
the Company, giving to the other party thereto not less than 12 months’
notice in writing. For the period ended 30 June 2023, investment management
fees and charges of £964,912 (for the period ended 30 June 2022: £1,101,447)
were charged to the Company and £154,662 (as at 31 December 2022: £155,320)
remained payable at the period/year end.
14. Fair value measurement
IFRS 13 ‘Fair Value Measurement’ requires the Company to establish a fair
value hierarchy that prioritises the inputs to valuation techniques used to
measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements).
The three levels of the fair value hierarchy under IFRS 13 ‘Fair Value
Measurement’ are set as follows:
* Level 1 Quoted prices (unadjusted) in active markets for identical assets or
liabilities;
* Level 2 Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability either directly (that is, as prices) or
indirectly (that is, derived from prices); and
* Level 3 Inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement. For this purpose, the
significance of an input is assessed against the fair value measurement in its
entirety.
If a fair value measurement uses observable inputs that require significant
adjustment based on unobservable inputs, that measurement is a Level 3
measurement. Assessing the significance of a particular input to the fair
value measurement requires judgement, considering factors specific to the
asset or liability.
The determination of what constitutes ‘observable’ requires significant
judgement by the Company. The Company considers observable data to be that
market data that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, and provided by independent sources
that are actively involved in the relevant market.
The Company recognises transfers between levels of the fair value hierarchy as
of the end of the reporting period during which the transfers have occurred.
During the period ended 30 June 2023, there were no transfers from Level 2 to
Level 1 (for the year ended 31 December 2022: £Nil).
Investments whose values are based on quoted market prices in active markets,
and are therefore classified within Level 1, include Korean preference shares
and exchange traded options.
The Company holds investments in derivative financial instruments which are
classified as Level 2 within the fair value hierarchy. These consist of credit
default swaps with a fair value of £1,109,294 (as at 31 December 2022:
£1,145,453). The Company held no investments in derivative financial
instruments classified as Level 1 within the fair value hierarchy (as at 31
December 2022: £Nil).
The fair value of credit default swaps is determined by estimating future
default probabilities using market standard models. The principal input into
the model is the credit curve. Credit spreads are observed directly from
broker data or third party vendors. The significant model inputs are
observable in the marketplace or set in the contract.
The following table presents the Company’s financial assets and liabilities
by level within the valuation hierarchy as of 30 June 2023:
Total
As at
30 June
Level 1 Level 2 Level 3 2023
(Unaudited)
£ £ £ £
Financial assets/(liabilities) at fair value through
profit or loss:
Korean preference shares 117,693,983 - - 117,693,983
Financial derivative liabilities - (1,109,294) - (1,109,294)
Total net assets 117,693,983 (1,109,294) - 116,584,689
Total
As at
31 December
Level 1 Level 2 Level 3 2022
(Audited)
£ £ £ £
Financial assets/(liabilities) at fair value through
profit or loss:
Korean preference shares 120,764,446 - - 120,764,446
Financial derivative liabilities - (1,145,453) - (1,145,453)
Total net assets 120,764,446 (1,145,453) - 119,618,993
Cash and cash equivalents included cash in hand and deposits held with banks.
Amounts due to brokers and other payables represent the contractual amounts
and obligations due by the Company for settlement of trades and expenses.
Amounts due from brokers and other receivables represent the contractual
amounts and rights due to the Company for settlement of trades and income.
15. NAV reconciliation
The Company announces its NAV to the LSE daily, on each UK business day. The
following is a reconciliation of the NAV per Share attributable to
participating Shareholders as presented in these Condensed Financial
Statements, using IFRS to the NAV per Share reported to the LSE:
As at 30 June 2023 As at 31 December 2022
NAV per NAV per
Participating Participating
NAV Share NAV Share
(Unaudited) (Unaudited) (Audited) (Audited)
£ £ £ £
Net Asset Value reported to the LSE 119,387,031 1.7236 127,405,980 1.8383
Adjustment to accruals and cash (11,262) (0.0001) (3,136) (0.0001)
Adjustment for dividend income (11,606) (0.0002) (322,351) (0.0046)
Net Assets Attributable to Shareholders per Condensed Financial Statements 119,364,163 1.7233 127,080,493 1.8336
The published NAV per Share of £1.7236 (as at 31 December 2022: £1.8383) is
different from the accounting NAV per Share of £1.7233 (as at 31 December
2022: £1.8336) due to the adjustments noted above.
15. Subsequent events
These Condensed Financial Statements were approved for issuance by the Board
on 15 September 2023. Subsequent events have been evaluated until this date.
Effective 20 July 2023, Norman Crighton retired from the Board and Krishna
Shanmuganathan was appointed as the Chair.
No further subsequent events have occurred.
Statement of Principal and Emerging Risks and Uncertainties
For the period ended 30 June 2023
The Company’s risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee at its meetings
and annually by the Board. The Board believes that the Company has adequate
and effective systems in place to identify, mitigate, and manage the risks to
which it is exposed.
Emerging Risks
In order to recognise any new risks that may impact the Company and to ensure
that appropriate controls are in place to manage those risks, the Audit
Committee undertakes a regular review of the Company’s Risk Matrix. This
review took place on four occasions during the year.
Geopolitical Risks
Risks to global growth have been heightened as a result of the conflict in the
Ukraine. The level of tension between North and South Korea fluctuates. There
is a heightened risk of malicious cyber activity. Through the Management
Engagement Committee, the Company asks its service providers to confirm that
they have appropriate safeguards in place to mitigate the risk of
cyber-attacks and remote working (including minimising the adverse
consequences arising from any such attack), that they provide regular updates
to the Board on cyber security, and conduct ongoing monitoring of industry
developments in this area. None of the Service Providers have reported any
problems regarding cyber security when questioned by the MEC.
Principal Risks and Uncertainties
In respect of the Company’s system of internal controls and reviewing its
effectiveness, the Directors:
* are satisfied that they have carried out a robust assessment of the
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency, or liquidity; and
* have reviewed the effectiveness of the risk management and internal control
systems, including material financial, operational, and compliance controls
(including those relating to the financial reporting process) and no
significant failings or weaknesses were identified.
The principal risks and uncertainties which have been identified and the steps
which are taken by the Board to mitigate them are as follows:
Investment Risks
The Company is exposed to the risk that its portfolio fails to perform in line
with its investment objective and policy if markets move adversely or if the
Investment Manager fails to comply with the investment policy. The Board
reviews reports from the Investment Manager at the quarterly Board Meetings,
with a focus on the performance of the portfolio in line with its investment
policy. The Administrator is responsible for ensuring that all transactions
are in accordance with the investment restrictions.
Operational Risks
The Company is exposed to the risk arising from any failures of systems and
controls in the operations of the Investment Manager, Administrator, and the
Custodian. The Board and its Committees regularly review reports from the
Investment Manager and the Administrator on their internal controls. The
Administrator will report to the Investment Manager any valuation issues which
will be brought to the Board for final approval as required.
Accounting, Legal and Regulatory Risks
The Company is exposed to the risk that it may fail to maintain accurate
accounting records, fail to comply with requirements of its Admission
Document, and fail to meet listing obligations. The accounting records
prepared by the Administrator are reviewed by the Investment Manager. The
Administrator, Broker, and Investment Manager provide regular updates to the
Board on compliance with the Admission Document and changes in regulation.
Discount Management
The Company is exposed to Shareholder dissatisfaction through its inability to
manage the share price discount to NAV. The Board and its Broker monitor the
share price discount (or premium) continuously and have engaged in Share
buybacks from time to time to help minimise any such discount. The Board
believes that it has access to sufficiently liquid assets to help manage the
Share price discount. The Company's discount management programme is described
within Note 18 of the Annual Report and Audited Financial Statements for the
year ended 31 December 2022.
Liquidity of Investments
The Korean preference shares typically purchased by the Company generally have
smaller market capitalisations and lower levels of liquidity than their common
share counterparts. These factors, among others, may result in more volatile
price changes in the Company’s assets as compared to the South Korean stock
market or other more liquid asset classes. This volatility could cause the NAV
to go up or down dramatically.
In order to realise its investments, the Company will likely need to sell its
holdings in the secondary market, which could prove difficult if adequate
liquidity does not exist at the time and could result in the values received
by the Company being significantly less than their holding values. The
liquidity of the market for preference shares may vary materially over time.
There can be no guarantee that a liquid market for the Company’s assets will
exist or that the Company’s assets can be sold at prices similar to the
published NAV. Illiquidity could also make it difficult or costly for the
Company to purchase securities, and this could result in the Company holding
more cash than anticipated. The Investment Manager considers the liquidity of
secondary trading in assessing and managing the liquidity of the Company’s
investments. The Board reviews the Company’s resources and obligations on a
regular basis with a view to ensuring that sufficiently liquid assets are held
for the expected day to day operations of the Company. However, if the Company
were required to liquidate a substantial portion of its assets at a single
time, it is likely that the market impact of the necessary sale transactions
would impact the value of the portfolio materially.
Fraud Risk
The Company is exposed to fraud risk. The Audit Committee continues to monitor
the fraud, bribery, and corruption policies of the Company. The Board receives
an annual confirmation from all service providers that there have been no
instances of fraud or bribery.
Financial Risks
The financial risks, including market, credit, and liquidity risks, faced by
the Company are set out in the annual report of the Company. These risks and
the controls in place to reduce the risks are reviewed at the quarterly Board
Meetings.
Climate Risks
Climate change is a growing area of focus for regulators, companies, investors
and other stakeholders. Climate related risks include both physical risks from
global warming and extreme weather events as well as transition risks (e.g.
increased regulation) and litigation risks. Climate risks are incorporated in
the Environmental, Social, and Governance (“ESG”) analysis under
environmental factors.
Directors’ Responsibility Statement
For the period ended 30 June 2023
The Directors are responsible for preparing the Unaudited Half-Yearly
Financial Report (the “Condensed Financial Statements”), which have not
been audited by an independent auditor, and confirm that to the best of their
knowledge:
* these Condensed Financial Statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) and in accordance
with International Accounting Standard 34 “Interim Financial Reporting”
issued by the European Union and the AIM Rules of the London Stock Exchange
(“LSE”);
* these Condensed Financial Statements include a fair review of important
events that have occurred during the period and their impact on the Condensed
Financial Statements, together with a description of the principal risks and
uncertainties of the Company for the remaining six months of the financial
period as detailed in the Investment Manager’s Report; and
* these Condensed Financial Statements include a fair review of related party
transactions that have taken place during the six-month period which have had
a material effect on the financial position or performance of the Company,
together with disclosure of any changes in related-party transactions in the
last Annual Report and Audited Financial Statements which have had a material
effect on the financial position of the Company in the current period.
The Directors confirm that the Condensed Financial Statements comply with the
above requirements.
On behalf of the Board,
Krishna
Shanmuganathan
Gill Morris
Chair
Audit Chair
15 September 2023
Board of Directors
The Company had four Directors during the period ended 30 June 2023 and
reverted to 3 directors from 20 July 2023. All Directors are considered
independent of the Investment Manager.
Krishna Shanmuganathan (aged 49)
Krishna Shanmuganathan is the Chair of the Company. He is also the Chair of
abrdn Asia Focus plc and founded Scylax Partners in 2016, a provider of
specialist advisory services. Prior to Scylax, Krishna was a managing partner
at Hakluyt & Company (Asia), a risk advisory company, having established and
led the Asia Pacific offices of the firm based in Singapore. Krishna has also
held research and analyst roles at Fidelity International and Cambridge
Associates after a successful and varied career in the Foreign & Commonwealth
Office. He holds a number of other non-executive appointments, including being
on the advisory board of Serendipity Capital, former chairman of the trustees
of St Jude India ChildCare Centres UK and a former trustee of Solefield School
Educational Trust. Krishna has Master’s degrees from University of Cambridge
and University of London, is British and resident in the United Kingdom.
Krishna was appointed to the Board in 2022.
Gillian Yvonne Morris (aged 60)
Gill is the Chair of the Audit Committee. She holds a number of other
non-executive appointments including The International Stock Exchange, where
she is also Audit Chair, and CICAP GP Limited. Gill has performed a number of
roles in local government including the Public Accounts Committee, the
Scrutiny Management Committee and the Tax Tribunal Panel. She is a qualified
Chartered Accountant (ICAEW) and a Chartered Tax Advisor (CIOT). She started
her career in London with Touche Ross & Co., worked for Touche Ross & Co. and
KPMG in Australia before returning to Guernsey. After almost 3 years with KPMG
in Guernsey, she joined Specsavers Optical Group Limited as their tax manager.
Gill held several positions in the Specsavers Group including Director of
Specsavers Finance (Guernsey) Limited and ultimately served as Director of
Risk and Government Affairs until 2020. She is currently also the treasurer of
the Guernsey branch of the Institute of Directors. Gill is British and
resident in Guernsey. She was appointed to the Board in 2021.
Wendy Dorey (aged 50)
Wendy is an experienced professional in the financial services industry, with
key competencies in business strategy, financial regulation, risk management
and investment marketing and distribution. She is currently a Director of
Dorey Financial Modelling, an investment consulting firm, a Commissioner for
the Guernsey Financial Services Commission, a Non-Executive Director for
Schroders (CI) Limited and a Non-Executive Director for TwentyFour Select
Monthly Income Fund Limited.
She has over 25 years’ industry experience working for asset managers,
pension consultants and retail banks in the UK, Guernsey and France. She has
worked for a number of leading asset managers: BNY Mellon, M&G Asset
Management, Friends Ivory & Sime and Robert Fleming/Save & Prosper. She has
also consulted to the Defined Contribution Consulting arm of the Punter
Southall Group, and obtained retail banking experience at Lloyds Bank and Le
Credit Lyonnais. A strong advocate of continuous learning, she assisted the
Investment Association in developing a new syllabus for independent financial
advisors and, in 2018, gained the Institute of Directors Certificate and
Diploma in Company Direction. She was admitted as a Chartered Director and
Fellow of the Institute of Directors in 2019 and was, until recently, the
Chair of the Guernsey Branch of the Institute of Directors. Wendy was
appointed to the Board in 2022.
Norman Crighton (aged 57)
Norman Crighton is an experienced public company director having served on the
boards of eight closed-end funds and one operating company over the past ten
years. Presently, Norman is also Non-Executive Chair of RM Infrastructure
Income plc, AVI Japan Opportunity Trust plc and Harmony Energy Income Trust
plc.
Norman has extensive fund experience having previously been Head of Closed-End
Funds at Jefferies International and Investment Manager at Metage Capital Ltd.
leveraging his 31 years of experience in investment trusts. His career in
investment banking covered research, sales, market making and proprietary
trading, servicing major international institutional clients over 15 years.
His work in many countries included restructuring closed-end funds and well as
several IPOs. During his time as a fund manager, Norman managed portfolios of
closed-end funds on a hedged and unhedged basis covering developed and
emerging markets.
Following on from his long-term promotion of best corporate governance
practice, Norman has more recently been focusing on expanding his work into
Environmental and Social issues. His work in the investment trust industry is
backed up with a Master’s degree from the University of Exeter in Finance
and Investment and a BA(Hons) in Applied Economics. Norman is British and
resident in the United Kingdom. Norman was appointed to the Board in 2013 and
retired on 20 July 2023.
Weiss Asset Management
Weiss Asset Management is an investment management firm headquartered in
Boston, MA registered with the U.S. Securities and Exchange Commission as an
investment adviser and with the Commodity Futures Trading Commission as a
commodity pool operator. In addition to WKOF, WAM manages multiple investment
vehicles, including private hedge funds and an institutional separate account.
The firm was founded by Dr Andrew Weiss, an academic economist, who launched
his first fund in 1991.
WAM employs deep fundamental and statistical analysis to find undervalued
securities globally and seeks to maximise risk-adjusted returns for its
investor base that includes charitable foundations, pension plans, endowments,
hospitals, government entities and private investors.
WAM has been investing in the Korean market for almost 25 years. Over this
time, the firm has built out a dedicated night desk of 9 employees focused on
trading its Asian strategies, as well as strong relationships with a number of
Korean brokers.
The firm has 100+ employees and assets under management of approximately £2.3
billion.
Andrew Weiss
Founder and Chief Executive Officer
Andrew is the Founder and Chief Executive Officer of WAM. Andrew received his
Ph.D. in Economics from Stanford University, was elected a fellow of the
Econometric Society in 1989 and is currently Professor Emeritus of Economics
at Boston University.
Andrew’s academic research interests have included markets with imperfect
information, macroeconomics, development economics, and labour economics. He
ranks in the top 1% of published economists by citations, and his co-authored
paper “Credit Rationing in Markets with Imperfect Information” with Joseph
Stiglitz was prominently featured in the Nobel Prize committee statement for
Stiglitz’s 2001 Nobel Prize Award.
Andrew began his career as Assistant Professor at Columbia University and as a
Research Economist in the Mathematics Center at Bell Laboratories. He has
lectured at numerous major universities and international organisations and is
the author of numerous articles published in professional journals.
Andrew began managing the predecessor to WAM’s existing domestic hedge fund
in 1991 and founded WAM in 2003. Andrew and WAM’s strategies have been
featured in articles in Forbes, Time, and Outstanding Investor Digest, as well
as newspaper articles in the U.S. and Europe.
Additionally, Andrew is a member of the Advisory Board of the University of
California Center for Effective Global Action, the Advisory Board for the
Center for Development Economics at Williams College and the Council on
Foreign Relations. Andrew and his wife Bonnie are the founders of Child Relief
International, a foundation dedicated to fighting poverty in less developed
countries. Andrew is also a board member of the WAM Foundation, a non-profit
focused on maximising the alleviation of suffering worldwide.
Jack Hsiao
Managing Director
Jack joined WAM in February 2008; he is a Managing Director and a member of
the Investment Committee. Prior to that, Jack interned at WAM from 2006-2008
while performing his undergraduate studies. Jack works from Boston and
oversees all strategies in Asia including investments across preference
shares, holding companies, bonds, distressed, value equities and other
instruments. After graduating Valedictorian from his high school, Jack
received his Bachelor’s degree in Economics from Harvard.
Ethan Lim
Portfolio Manager
Ethan joined WAM in June 2015; he is a Portfolio Manager at the firm and is
primarily responsible for managing the firm’s investments in Korea, while
overseeing the Asia team and other strategies during Asia hours. Prior to
joining Weiss, Ethan interned at Goldman Sachs’ Seoul office. Ethan
graduated from Seoul National University, where he received a BS in Mechanical
and Aerospace Engineering and a BA in Economics, and completed his Master’s
degree in Financial Engineering at Columbia University.How to Invest in Weiss
Korea Opportunity Fund
You can invest in the Fund through the following:
Via the nominated broker
The nominated broker is Singer Capital Markets.
The Board encourages all of its Shareholders to exercise their rights and
notes that many specialist platforms provide Shareholders with the ability to
receive company documentation, to vote their shares and to attend general
meetings, at no cost.
Please refer to your investment platform for more details, or visit the
Association of Investment Companies’ (“AIC”) website at
www.theaic.co.uk/aic/shareholder-voting-consumer-platforms for information on
which platforms support these services and how to utilise them.
Through a professional adviser
Professional advisers are usually able to access the products of all the
companies in the market and can help you find an investment that suits your
individual circumstances. An adviser will let you know the fee for their
service before you go ahead.
You can find an adviser at unbiased.co.uk You may also buy investment trusts
through stockbrokers, wealth managers and banks. To familiarise yourself with
the Financial Conduct Authority (“FCA”) adviser charging and commission
rules, visit fca.org.uk.
Shareholder Information
Share Buybacks
In addition to the Realisation Opportunity, the Company has authority to
repurchase on the open market up to 40% of its outstanding Ordinary Shares.
During the period ended 30 June 2023, the Company purchased Nil shares (2022:
Nil) of its own Shares at a consideration of £Nil (31 December 2022: £Nil)
under its general buyback authority. For additional information on Share
Buybacks refer to Note 20 of the Annual Report and Audited Financial
Statements for the year ended 31 December 2022.
Net Asset Value
Northern Trust International Fund Administration Services (Guernsey) Limited
(the “Administrator”) is responsible for calculating the Net Asset Value
(“NAV”) per Share of the Company. Since 4 April 2022, the unaudited NAV
per Ordinary Share is calculated on a daily basis and at the month end by the
Administrator, and is announced by a
Regulatory News Service and is available through the Company’s website
www.weisskoreaopportunityfund.com.
Corporate Information
Directors (Non-Executive) Company Secretary, Administrator and Designated Manager
Krishna Shanmuganathan (Chair) Northern Trust International Fund Administration Services (Guernsey) Limited
Gillian Yvonne Morris (Audit Chair) PO Box 255
Wendy Dorey (Management Engagement Chair) Trafalgar Court
Norman Crighton (retired 20 July 2023) Les Banques
St. Peter Port
Guernsey
GY1 3QL
Registered Office Financial Adviser, NominatedAdviser and Broker
PO Box 255 Singer Capital Markets
Trafalgar Court 1 Bartholomew Lane
Les Banques London
St. Peter Port EC2N 2AX
Guernsey
GY1 3QL
Investment Manager and AIFM Guernsey Legal Adviser to the Company
Weiss Asset Management LP Mourant Ozannes (Guernsey) LLP
222 Berkeley Street, Royal Chambers
16th Floor St. Julian's Avenue
Boston, MA 02116 St. Peter Port
USA Guernsey
GY1 4HP
English Legal Adviser to the Company Registrar
Stephenson Harwood LLP Link Market Services (Guernsey) Limited
1 Finsbury Circus Mont Crevelt House
London Bulwer Avenue
EC2M 7SH St. Sampson
Guernsey
GY2 4LH
Custodian and Principal Bankers Independent Auditor
Northern Trust (Guernsey) Limited KPMG Channel Islands Limited
PO Box 71 Glategny Court
Trafalgar Court Glategny Esplanade
Les Banques St. Peter Port
St. Peter Port Guernsey
Guernsey GY1 1WR
GY1 3DA
Endnotes and Alternative Performance Measures
(1,2,3) The NAV published in this annual report and audited financial
statement will include dividends receivable as part of the NAV. Please refer
to the Admission Document for more information regarding the announcement and
payment of Korean dividends.
(4,7) For WKOF, this return includes all dividends paid to WKOF’s
Shareholders and assumes that these dividends were reinvested in WKOF’s
Shares at the next date for which WKOF reports a NAV, at the NAV for that
date. MSCI total return indices are calculated as if any dividends paid by
constituents are reinvested at their respective closing prices on the ex date
of the distribution. iShares MSCI Korea UCITS ETF also assumes reinvestment of
dividends.
(5) Since inception of Weiss Korea Opportunity Fund on 14 May 2013. The WKOF
return since inception is calculated on the basis of the Net Asset Value per
Ordinary Share and not on the price of WKOF shares on AIM. The value of WKOF
NAV per share performance since inception represents a total return, inclusive
of all dividends paid to WKOF Shareholders since inception. The NAV per share
may differ from the price at which shares of WKOF may be purchased or sold on
AIM, and performance of NAV per share during any specific period may therefore
not be reflective of the returns an investor would receive by investing in
shares of WKOF during such period. For WKOF, this return includes all
dividends paid to WKOF’s Shareholders and assumes that these dividends were
reinvested in WKOF’s Shares at the next date for which WKOF reports a NAV,
at the NAV for that date.
(6,7) MSCI Korea 25/50 Net Total Return Index denominated in GBP. MSCI total
return indices are calculated as if any dividends paid by constituents are
reinvested at their respective closing prices on the ex-date of the
distribution.
(8 )If the share price of an investment company is lower than the NAV per
share, the shares are said to be trading at a discount. The size of the
discount is calculated by subtracting the share price from the NAV per share
and is usually expressed as a percentage of the NAV per share. If the share
price is higher than the NAV per share, the shares are said to be trading at a
premium.
(9 )Calculated as the dividend per share over the last 12-months divided by
the share price as of the date of this report.
(10) The Average Trailing 12-Month P/E Ratio of Preference Shares Held is
based on the consolidated diluted earnings per share over the trailing 12-
month period as reported by Bloomberg, and is calculated as the total market
value of WKOF’s preference share portfolio on the report date divided by the
total earnings allocable to WKOF based on WKOF’s holdings on the report
date. Investments with negative reported earnings are excluded.
(11) P/B Ratio of Preference Shares Held is calculated as the weighted average
price to book ratio of all preference shares held at 30 June 2023.
(12) The annualised total expense ratio includes charges paid to the
Investment Manager and other expenses divided by the average NAV for the year.
1(3) Bloomberg L.P. (2022). Bloomberg Innovation Scores as of 12/31 since
2013. Retrieved from Bloomberg terminal.
(14 )WIPO IP Facts and Figures 2022. (n.d.). World Intellectual Property
Organization.
(15) Most recent sovereign credit ratings from Moody’s, S&P, and Fitch as of
31 December 2022.
(16) Leading export countries worldwide in 2022. (n.d.). Statista.
(17 )GDP. (n.d.). World Bank.
(18) Doing Business 2020. (2020). World Bank.
(19) PISA 2018 Insights and Interpretations. (n.d.). Organisation for Economic
Co-operation and Development.
2(0 )Source: Bloomberg L.P. Weiss Asset Management LP Data retrieved as of 30
June 2023.( )
(21) Bloomberg LP. Data as of 30 June 2023.
(22 )Please note that the Annual Report as of December 31, 2022 erroneously
stated that there were 121 series of South Korean preference shares
outstanding. As of December 31, 2022, there were 118 Korean preference shares
outstanding. In June 2022, three preference shares (Tongyang Inc, 3(rd) Pref;
Dongbu Steel Co. LTD, Pref; Shinwon Corp, Pref) were delisted due to market
listing rules. They were delisted for having less than 100,000 shares
outstanding.
(23 )Market capitalization of the leading chemical companies worldwide in
March 2023. (2022). Statista.
(24 )Global EV battery usage in 2022 is 517.9GWh, up 71.8% from the previous
year. (2023). SNE Research.
(25 )About Us. (2022). LG Chem.
(26 )Market share of the top six car manufacturers in South Korea in 2022,
based on sales volume. (2023). Statista.
(27 )Hyundai Motor Reports 2022 Global Sales and 2023 Goals. (2023). Hyundai.
(28) Samsung maintains No.1 position in global TV market. (2023). The Korea
Economic Daily.
(29) Subsidiaries Info. (n.d.). Hanwha Corporation.
(30 )Global Business. (n.d.). Mirae Asset Securities
(31) Brands. (n.d.). AmorePacific Group.
(32) Brands. (n.d.). CJ Cheijedang.
(33) Company. (n.d.). LG H&H.
(34) Technology and Products. (n.d.). Doosan Fuel Cell.
(35) Our Business. (n.d.). SK Chemicals.
(36) This return includes all dividends paid to WKOF’s Shareholders and
assumes that these dividends were reinvested in WKOF’s Shares at the next
date for which WKOF reports a NAV, at the NAV for that date.
(37) MSCI Korea 25/50 Net Total Return Index denominated in GBP. MSCI total
return indices are calculated as if any dividends paid by constituents are
reinvested at their respective closing prices on the ex-date of the
distribution.
(38 )This return includes all dividends paid to the Company’s Shareholders
and assumes that these dividends were reinvested in the Company’s Shares at
the next date for which the Company reports a NAV, at the NAV for that date.
(39 )Bloomberg L.P. Data as of 30 June 2023. Valuation of Major Indices Table.
(40) Market Data System. (n.d.). Korea Exchange.
(41) Foreigners who raised the KOSPI in the first half of the year (July 2023)
Economist Korea.
(42) South Korea Export Downturn Slows, Trade Balance Swings to Surplus (June
2023). Reuters
(43) Korea’s ICT Exports reach $16.1 billion in June (2023). Ministry of
Trade, Industry, and Energy.
(44) Monetary Policy Discussion & Opening Remarks to the Press Conference
(July 2023). Bank of Korea.
(45) Consumer Price Index in June 2023. Statistics Korea.
(46) Despite austerity measures, Korea sees highest household-debt-to-GDP
ratio of major economies in Q1 (May 2023). Hankyoreh.
(47) Korean Household Debt, Including Jeonse Deposit, economic size / income
ranks 1(st) in OECD. Korea Economic Research Institute.
(48) Unusual $828 Billion Loan Market Magnifies Housing Risk in Korea (March
2023). Bloomberg.com
(49) Sales Price Index (Comprehensive Housing Type). Real Estate Board
(Korea).
(50) Weiss Asset Management LP. Data as of 30 June 2023.
(51) LG Chem to sell $1.6 bn stake in LG Energy to Foreign Investors (June
2023). The Korea Economic Daily.
(52) The 10 Biggest EV Battery Manufacturer in the World (2022),
CleanTechnica.
(53) South Korea’s LG Chem Raises $2bln in exchangeable bond. Reuters.
(54) Hyundai Motor Announces 2023 Q1 Business Results (April 2023). Hyundai.
(55) Committed to Shareholder Returns (2023). Samsung.
(56) Hyundai Motor Company Q1 2023 Result, Investor Relations Transcript
(2023). Hyundai Motor Company.
(57) FnConsensus (2023). FnGuide.
(58) Shareholder Activism in H1 2023. Insightia.
(59) Commercial Act. Korea Legislation Research Institute.
(60 )Is the debate accelerating the revision of the commercial law on
shareholder protection? (April 2023). Hankung.
(61) How to Improve the Dividend Process in line with Global Standards
(January 2023). Financial Services Commission.
(62) Please note that the calculation of employee holdings no longer includes
two former senior partners of the Investment Manager. The two former partners
held 3,253,925 shares of the Fund as of December 31, 2022.
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