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Is Following Savvy Investors A Smart Investment Strategy In Singapore?

When Hutchison Port Hldg Trust (SGX: NS8U) got listed in Singapore in 2011, I remembered that it had generated huge excitement.

Many investors I spoke to had bought into it. But, they did so not because they were attracted to the business fundamentals of the trust, which owns shipping ports in Hong Kong and China.

Instead, they wanted in because Hutchison Port Holdings Trust was linked to Hutchison Whampoa, the conglomerate which is majority-owned by Hong Kong’s richest man, Li Ka Shing. In other words, the investors in Hutchison Port Holdings Trust I had spoken to were all attracted by the prospect of investing alongside Li, who has a reputation for being an extremely savvy investor.

Yet, Hutchison Port Holdings Trust has delivered a negative 5% total return (with gains from reinvested distributions accounted for) since the close of its first-ever trading day (18 March 2011).

In contrast, an investment into the SPDR STI ETF (SGX: ES3), an exchanged-traded fund which tracks the Straits Times Index (SGX: ^STI), would have clocked a total return of 28.5% over the same duration.

Sure – Hutchison Port Holdings Trust may have had the backing of a multi-billionaire who has a reputation for being a great investor. But, we should still not take that as a defining factor for investing in the trust.

Hutchison Port Holdings Trust business performance

Source: S&P Capital IQ; *the trust’s financial year coincides with the calendar year

If we look at Hutchison Port Holdings Trust’s business performance since 2009 (given in the table above), it’d be a real stretch to say that the trust has performed well. For instance, revenue only grew by a cumulative 23% between 2009 and 2014 while operating profit has actually been declining steadily.

In the last quarter of 2014, the trust even suffered a HK$19 billion goodwill impairment loss; this resulted in the net loss seen in 2014.

All these point to the likelihood that Hutchison Port Holdings Trust may have been overvalued during its IPO (initial public offering).

Foolish Summary

The idea of being a partner with great investors can be a strong motivating factor for an investment into a company – that’s only natural.

But, we also have to recognise that some of these great investors may have invested in their companies at the very beginning and there is a possibility that the growth of those companies may have run their course by the time their shares are available to you.

If we invest under such circumstances and yet expect great growth going forward, we might just end up getting disappointed.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any companies mentioned.