E Special Fund Report

Now we have been sent the June 30 semi-annual report by our AEF which reveals that in the H1 our fund's NAV fell 6% and its market price fell 10.8%, fractionally beating the MSCI Emerging Markets index. It also gives us a hint as to why this exercise was carried out.

Our fund now has almost no listed Israeli shares or ADRs and the country doesn't appear in its allocations at all. This is NOT because of any boycott or divestiture of Israeli shares by the fund managers, but more of a cover-up. In the granular details, I found that the successor funds has stakes in 21 Israeli illiquid non-income producing private equity entities called ABS, BPA, Delta, Exent, FlashGiza, Neurone, and most of all Vidyo whose fair value is 0.2% of funds under management. All were acquired between 1998 and 2015 (the Vidyo in 2013), six of which are in liquidation and another 12 worth pennies on the dollar. There were 21 in all at the start, which means this was a really poor management decision, why Aberdeen set out to hide this disaster by the complex merger.

Other fudges: our fund's largest holding is 6.7% of its assets in Tencent Holdings of China, TCEHY and zero assets in its much cheaper 31% owner, Naspers of South Africa, which is really an emerging markets play. It also owns a 3.8% chunk of Samsung of South Korea; 4.1% of Taiwan Semiconductor Mfg. and 2.4% of Taiwan Mobile; and 3.1% in India's Infosys and Tata Consultancy--none emerging markets playsIn fact, it has 8.1% of its assets in Hong Kong; 6.8% in the US; 6.5% in Taiwan; 6.3% in South Korea; 1.2% in the UK, and 1.1% in Portugal. All are not in the MSCI Emerging Markets Index.

We use closed-end funds to get management of our money in countries where it is hard to invest, where families control much of the market, where regulators ban foreigners, where information is scant. Buying Tencent or Samsung or Taiwan Semi doesn't involve any of these skills.

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