One way of investing in Gold – SPDR Gold Shares [O87]

***Please note that this does not constitute a stock recommendation for buy or sell. This is purely my own analysis and is to be taken as my own personal opinion and not to be taken as correct. Kindly do your own diligence in purchasing stocks.


Some shiny gold bars

Nearing the end of the year for 2016, I have been reviewing my CPF account and find that it is not growing as quick as I would like it to be. Despite the Dow Jones nearing the psychological barrier of 20,000 and the S&P hitting new highs, the STI is pretty flat which depicts the bleak outlook of the Singapore economy. As my ordinary account (OA) is above the amount of $20,000, I have been looking for opportunities to see if I am able to make my CPF money work harder. For those who are unaware, the Singapore government has decided to give 1% more for the first $60,000 in the CPF account, with only the first $20,000 in the OA applicable for it. In order words, the first $20,000 will earn 3.5%, while any excess amount in the OA will only earn you 2.5%. As the first $20,000 can’t be used for investments anyway, I am looking out for any available opportunities in the market which will allow me to earn >2.5% per annum. Due to various rules restricting the investments allowed to be made, there are not many options left. In addition, due to my current vested position in DBS, I do not have much money left allocated for stocks and bond investment. As such, I turn to the other option left, which is the amount allocated for gold. Furthermore, with such high valuations in the foreign stock markets and uncertainty in the near future, I believe that gold investing warrants a second look. Thus, I began to look at SPDR gold shares (O87). In addition, only 10% of the monies in the OA is allowed to be invested in gold.

SPDR Gold Shares is a gold only ETF, with its mandate clearly stated out on the website – “for the Shares to reflect the performance of the price of gold bullion, less the Trust’s expenses.” It is a trust which holds gold bullion and from time to time issues shares in baskets in exchange for deposits of gold and distributes gold in connection with the redemption of baskets (in other words an open ETF, however for retail investors there is no need to create baskets as the investment outlay is very high).

The general information on it are as follows (taken from SPDR Gold website below):

Sponsor : World Gold Trust Services, LLC

Trustee : BNY Mellon Asset Servicing

Custodian : HSBC Bank Plc

Exchange Listed : SGX, NYSE, BMV, TSE & SEHK

Board Lot size : 10 shares

Trading currency : USD

Ounces of Gold: 26,509,820.12

No. of shares: 277,300,000 (as at 31/12/2016) [assuming in circulation for all the exchanges]

Gold Spot Price: US$1,152.06 (as at 31/12/2016)

Gold Measurement Method: LBMA Gold Price

Net Expense Ratio: 0.40% of the daily NAV for Sponsor Fees, payable by the Trust


I have briefly skimmed through the prospectus and website and this is a relatively simple and straightforward Gold ETF. It has a trust structure which holds gold. As mentioned above, the NAV will just track the value of the gold. As and when necessarily, they will sell the gold in the vault to pay for the expenses above and whenever available, gold will be added or removed when authorized participants add new baskets to the ETF or when they are redeemed. Base on my understanding, the gold are stored in an allocated account, and only transferred to an unallocated account to facilitate gold transactions. According to, allocated gold is gold owned outright by an investor and is stored, under a safekeeping or custody arrangement, in a professional bullion vault. On the other hand, unallocated gold is the property of the bank, and it is not protected from a bank’s insolvency. The number of shares provided in their website and above are freely floated in all the exchanges as confirmed in an email inquiry I sent them, but they are also not sure how many are available in SGX. I am unsure of how it actually works but I suppose there is not much impact as the number of shares I buy are quite minimal in the bigger scheme of things.

In the last week of 2016, I have bought 20 shares of SPDR gold shares at $108.39 and it has increased by approximately 1% as of the end of 2016. Previously when I started investing, I was under the influence of Warren Buffet’s believe that gold is just a piece of rock that doesn’t yield anything. However ever since starting trading in June, I have started to appreciate the value of gold and thus leading to my decision to buy the gold ETF. So here are a couple reasons why I bought some before the year end.

Rollercoaster 2016 year and uncertainty ahead

2016 has been an eventful year for the financial markets and the price of gold has risen quite a far bit throughout the year due to its image as a safe haven during uncertain times and fallen as well when risk appetite increased. With many equity indexes ending up for the year and making new record highs, it may seem odd for me to buy gold. “Be fearful when everyone is greedy and greedy when everyone is fearful”. Keeping Warren Buffet’s words in mind, this is a time to be fearful as records are broken and everyone is having a rosy picture ahead when there hasn’t been much global growth. There is quite a bit of uncertainty in terms of what Trump’s economic reform plans are, the storm brewing in Europe, the plans for Brexit. With this number of events filled with uncertainty just on the horizon, it is difficult to say that there is no problem and financial markets are doing well. As such, this is a reason to buy gold now and sell them during the crisis time when the value of it is higher. This is assuming that people still view gold as a safe haven holds true.

Inflation hedge 

There is a great deal of expectation that Trump taking office will generate inflation. There are some people that view gold is a good hedge against inflation, and others who think otherwise. There also some who say that measuring inflation using CPI is a flawed approach and gold is a good hedge against inflation if not measured using CPI. These are mixed views and I have no idea which is correct and which is not. To me, I suppose the most important thing is people’s impression and sentiment of gold. The value that people place in gold. I think that to many people, gold holds an important role as a store of value, and that is good enough for me to buy it. I may not think so, but it does not matter as I am but a small fish swimming in the huge financial ocean. I will swim with the tide. As such, if it is a store of value as people ascribe it to be, I believe that gold will be somewhat a hedge against inflation. Whether it is or not, I do not know, but as long as people’s impression of gold holds, it should be okay to hold some gold.

Appreciation of USD/SGD

The trump rally and the mention of 3 rate hikes by the Fed in 2017 has resulted in a considerable run up of USD against all the other currencies. Also, during the presidential election campaign, Trump has said that the Trans Pacific Partnership Agreement was a bad idea. If the USA is not going to ratify it, it spell big problems for the Singapore economy. Furthermore, will tepid global economic growth, Singapore is not spared from it either as it is an export dependent economy. As such, there is much headwind for the SGD and thus, buying gold which is denominated in USD presents a greater value when I sell it to receive SGD in the future.

As such, I have decided to hold them for at least a year, but I am confident that I will be able to offload them during the year at a profit. I just need to overcome a return rate of 2.5%+2%=4.5% in order to do better than the CPF return rate. The additional 2% is to account for transaction costs. If the NAV hits $150, I will sell them immediately. I believe that gold is more of a strategic move of allocating money in the short term and I still don’t think that it should be held over a long time horizon. What are your thoughts on this? Let me know what you think in the comment box below.


Investment Analysis of Religare Health Trust [RF1U]

***Please note that this does not constitute a stock recommendation for buy or sell. This is purely my own analysis and is to be taken as my own personal opinion and not to be taken as correct. Kindly do your own diligence in purchasing stocks.

This is an analysis of Religare Health Trust [RF1U], a business trust listed on SGX which consists of healthcare assets in India. I have recently initiated a long position in it and I plan to hold it for the long run.

religare logo comparison

Doesn’t the logo look like a green inverted tilted DBS?

It has a short listing history, only listed on SGX since 2012, and it has an investment mandate to principally to invest in medical and healthcare assets and services in Asia, Australasia and emerging markets in the rest of the world. RHT may also develop medical and healthcare assets. (Although for now, it seems like it is only developing its assets in India.) Currently it has 18 assets spread across India, 12 clinical establishments, 4 green-field clinical establishments, and 2 operating hospitals. Clinical Establishment refers to a fully centrally air-conditioned institution established and specifically customized and fitted with all fixtures, fittings, medical equipment and infrastructure required for running and operating a hospital, offering: (1) services for diagnosis and treatment for illness, disease, injury, deformity and/ or abnormality; (2) diagnosis of diseases through radiological and other diagnostic and investigative services with the aid or laboratory or other medical equipment; and (3) beds for in-patient treatment. The Greenfield clinical establishments mean that the investment is in an area where no previous facilities exist, and the Group is able to build according to its own specifications.

So where does its’ revenue come from? This is the part where it gets a bit tricky and I am slightly unsure and might be wrong. Its’ revenue is divided into 3 portions – Service fee, Hospital income and Other income.

Service fee: Aggregate of the base and variable service fee for providing Clinical Establishment services, including but not limited to the out-patient department services (OPD) and the radio diagnostic services (RDS). Based fee is an amount agreed upon with Fortis group and increases 3% p.a. revised upwards for capex/expansions and variable fee is 7.5% of the Fortis Hospital’s operating income. Sounds good on paper that it is able to participate in the operational growth of the Fortis hospitals.

Hospital income: Solely arises from the provision of medical services of the 2 operating hospitals under RHT.

Other income: Includes lease income from pharmacy, cafeteria, bookshop, automated teller machines and other amenities in the Clinical Establishments of the Group

This is slightly confusing as if I understand correctly from the prospectus, the hospital service companies will hold all of the RHT clinical establishments in the initial portfolio, and will enter hospital and medical services agreements with Fortis entities, which will manage and run the operations of those establishments and provide additional healthcare above those provided by the hospital service companies such as in-patient and emergency services. Sounds a bit odd to me, but I am definitely unfamiliar with the way how this works.

Anyways, diving straight into my own estimated calculations, using the Gordon Dividend growth Model, assuming no growth rate and constant capital structure, the back of the envelope computes the share price to be approximately $1.02.

Shareholder equity (S) – 739,608

Debt (D) – 269,795

Cost of equity – 7.0% [assumed as the yield rate that the Group’s investors seek, which can also be taken as yield investor is seeking, and actually the yield rate I am looking at]

**Note that cost of equity above is different from distribution payout amount below, (cost of equity may vary, depending on the entry price)

FY2012 – $0.0355 (half year data available due to listing in Oct 2012)

FY2013 – $0.0405+$0.0414 = $0.0819

FY2014 – $0.0361+$0.0371=$0.0732

FY2015 – $0.039+$0.0382=$0.0772

Cost of debt – 6.5% [conservative estimate, with 4.5% fixed rate note from multicurrency MTN]

WACC – 7.31% [(S/(S+D)*(Cost of equity) + D/(S+D)*(Cost of debt)]

Valuation – $1.026 [(Cost of equity)/(WACC), Assuming no dividend growth]

For this share, I bought it at a fair price of $1.01, which is different from other shares which I buy them undervalued instead. Going by its NAV of $0.927, it is currently trading at a premium of approximately 8.95%. It also have a lot of room for expansion/acquisition via debt, with its current gearing ratio at 18.1%, and management is voluntarily adopting a gearing limit of 60%, with a target policy of 30-40%. Currently it has a distribution policy of distributing 95% of distributable income for FY2017, and have 5% retained for future capital expenditure in relation to expansion or replacement initiatives.

So why was I attracted to this? It’s for the reasons below:

Growth of Healthcare

Healthcare is always necessary and the demand for it will only rise over time. It has blossomed well in Singapore, with healthcare becoming more expensive over time (just look at the share price of medical related companies), and India being an emerging company, there will be plenty of opportunities for it to grow and develop. People are also getting more affluent in India, which results in an increase in lifestyle related diseases for the Indian locals and a growing medical tourism industry will only increase the demands for the healthcare sector. This is also receiving a boost from the government, whereby government encourages industry players to provide quality healthcare through public-private partnerships, tax incentives, and subsidies, and promoting health insurance market to make private healthcare more affordable. Moreover, Religare has a very strong sponsor, Fortis, and have rights of first refusal over the clinical establishments it own, allowing Religare opportunities for expansion of assets. Also, despite the premium over the NAV, it does not seem to earn rental fee of the hospital establishment, but rather providing medical services. Comparing to other players in the similar industry, healthcare REITs also tend to command a premium over NAV as well.

Business trust structure and distribution policy

I have been looking for an investment with constant recurring income and I guess a business trust structure fits the bill. Singaporeans in general prefer REITs, and especially with the current downturn in occupancy rates for Singapore REITs, it might be a good time to look at REITs but the reason I am not choosing a REIT is for the simple reason that I am lazy. Buying REITs, there might have a higher distribution cost and lower corporate tax, but it comes at a cost to a personal income tax. Typically REITs have a 2 tiered distribution, a component which is not taxable, and the other component is taxable. I am simply lazy to include it when filing for tax, and hence I’m looking for business trusts instead. Business trusts are not obligated by law to distribute at least 90% of income, but generally they do and since management has announced its policy so as previously mentioned, it should be okay to have a recurring income. Over time, as the green-field establishments get upgraded and with the services fees increasing each year, hopefully the distribution will increase over time as well.

So what are some of the -ve things to consider?

INR currency

As with all companies who have their business outside of Singapore, it is unavoidable that there will always be currency exchange risks. Religare is no exception, with its business in India. Management have taken steps to mitigate this risk by entering forward contracts to hedge close to 100% of cash flows for distribution, which is a good thing. I don’t think anyone can accurately predict the INR/SGD rate in the near future and hedging to lock in a fixed rate is good as it provides certainty, which equates to a more stable distribution.

Exposure to India laws

With its’ assets situated in India, it is naturally subjected to Indian laws and government rulings. I am not very familiar with Singapore laws much less Indian laws, and taking a cursory glance at the prospectus, it might be scary, as it flags out issues such as not able to validate title deeds, ability to repossess land etc. Such an example is the disposal of economic interests in Fortis Hospotel Ltd to FHL. I am unsure of the difference between economic interest versus equity interest as I always thought they are the same. Guess I need to find out more. Regarding this, I can only put my trust in the managers to see that operations and things run smoothly over there.

Complex trust structure

religare health trust structure

Enough said. The trust structure diagram is complicated and confusing. I am also unsure of how the relationship between Religare and Fortis work out to be and it does not seem to be as simple as it is.

Fee Structure

Base fee – 50% paid in units

Perfomance fee – 50% paid in units

Development fee – payable in the form of either cash or units

As you can see, there is high potential for dilution, something to watch out for.


In closing, I think it is a fair price for its value and I plan to hold this share for a long long time. In the short run, there will definitely be a dip in revenue due to the Fortis Hospotel Ltd sale transaction to FHL, but I am optimistic of its’ long term prospects to be a dominant player in the India healthcare field. However, a part of me is unsure of how this can be beneficial to society as a whole in providing affordable healthcare as the hospital service business is to charge the patients a high fee for medical care. This is probably compounded more by the fact that the board of directors is mainly composed of finance trained people and only a single person with a degree in medicine in the mix. Any thoughts or comments? Let me know what do you think or if I am wrong in any area.