NTA stands for Net Tangible Assets. For a Fund, the only two tangible assets that exist are the shares we hold, and the cash sitting in the bank account. Net Assets means the liabilities incurred to get those assets need to be deducted. The main expense in any Fund is tax, followed by operating expenses (in the case of HM1 the semi-annual donation we make to medical research is an expense of the Fund, which we make instead of taking a management fee).
This week, our Pre Tax NTA was reported at $3.37 per share. This means that the total market value of the shares we own as at Friday night, plus the cash we have sitting with our Custodian, amounted to $3.37 per share issued. When HM1 was floated in November 2018, there were 200 million shares issued to shareholders. In December 2019, we issued a further 25 million shares at $2.50 to fund our newest Core Manager, TDM Growth Partners, so there are 225 million HM1 shares on issue today. At $3.37 this amounts to just over $750m of portfolio value.
The second number we report is the Post Current Tax NTA. This is the one I most frequently refer to in my updates. Current tax is the tax payable on all realised gains in the investment portfolio and on any operating profits. We actually go further and deduct the unrealised tax liability on the conference portfolio of stocks we hold. We do this because these stocks will only be held for a maximum of 12 months before we sell them. When those stocks are realised we don't want to show a sudden fall in the value of the portfolio as the tax liability increases, so we provision for it as it happens.
The third number we show is the Post Tax NTA, which by now, I'm sure you can define! It deducts the tax on both the realised and unrealised gains in the total investment portfolio, or more simply, how much cash per share we would have if we sold all of the shares, paid all of the tax due, as well as all other expenses owing.
So, which is the most relevant number to look at? Investors all have differing views on this, and no one number is the 'best' number in my opinion. Benchmark returns are all reported on a pre-tax basis, so when we compare our performance to a benchmark, we think it best to compare like-with-like, and this is why our comparison charts use Pre Tax NTA. As I said, I like to refer to Post Current Tax. Knowing what gains we have realised already means we know what the tax will be, and so we set this amount aside in an interest bearing cash account, and invest the rest. Post Tax NTA is the actual absolute cash value of the Fund if we were to liquidate all of the shares and therefore is also very relevant to shareholders when looking at the value of their investment. During the market sell-off in March, you will see that investors sold their HM1 shares well below their 'cash' value, such was the fear investors suffered during that time. So, when you see discount to NTA mentioned, this is what it means.
I hope this helps many of you better understand how the valuation of the portfolio is calculated.
