Profit on the SOEs
    Category: Rightsizing the SOEs By : Gloria Haraito Read : 1104 Date : Tuesday, August 06, 2013 - 06:51:52

    Ahmad Zamroni / Forbes Indonesia

    Does buying a basket of stocks of state-owned enterprises (SOEs) make a good investment? If you believe in that idea, then one way to invest is to buy Nikko Securities Indonesia's BUMN Plus fund. The fund is the only one available in the country that invests exclusively in SOEs and government bonds. This fund has 72% of its assets in SOE stocks, 20% in government bonds and 8% in the money market. The rationale behind this fund, explains PT Nikko Securities Indonesia Chief Investment Officer Ratih Dewi, is that SOEs are a good investment. “We believe SOE stocks and government bonds are fundamentally strong, therefore we issued this fund,” says Ratih, 43.

    Some of the advantages that SOEs enjoy over privately held companies, says Ratih, is the implicit government protection. Although there's no official guarantee that an SOE can't become bankrupt, the government is likely to intervene to rescue an SOE in trouble—for example the government helped Garuda Indonesia restructure its debt. SOEs should also have an easier time to raise funds than a private company, again due to the implicit government backing.

    So why not buy 100% SOE stocks for the fund? Ratih explains that the 28% of the fund in bonds and near-cash is to provide a safety cushion. “The diversification is part of the strategy to reduce risk,” she says. The percentage in bonds and money market is not fixed, she explains, but can be changed based on market conditions.

    What kind of return have investors enjoyed? Since the fund was started in September 24, 2008, it has had a cumulative return of 92% to early July. While that return is below the 150% for the broader IDX composite index for the same period, or even less than the 220% return of one of the fund's largest holdings, Bank Mandiri, Ratih argues that the fund is meant for conservative investors, who may wish to hedge their bets with some fixed income, cash and a diversified basket of stocks. On that basis, she says, the fund has done well when compared against the return of an investment that had a similar mix of equity, bonds and cash as the Nikko fund. 

    The fund also has low expenses, at only 0.5% to subscribe, and 0.5% for any redemption before the first six months and no charge after six months. The minimum investment is Rp 1 million, sold directly from Nikko or through distributor Commonwealth Bank. The Nikko fund has assets of about Rp 37 billion.