“Secret Pension Payout Plan”

by Travis Johnson, Stock Gumshoe | May 30, 2007 2:51 pm

This one was talked up on the Gumshoe forum[1] a little bit, and forum member jg gave me the key clue to get me over the hump to sleuth it out for you. This one has nagged at me for a little while, so I like this forum business already!

Here’s what we’ve got:

An ad from Addison Wiggin, touting the newsletter Free Market Investor, which is apparently run by economics savant (in Wiggins’ opinion) Christopher Hancock[2]. The newsletter is $99 a year, so not so outrageous … but wouldn’t it be better if we didn’t need the newsletter at all?

I agree.

So this ad touts “The World’s Greatest Retirement Stock” … it is a high yield[3] growth stock, according to Wiggin.

“Get double-digits returns and income checks … from a secret and super-reliable ‘pension-payout plan’ that’s otherwise off-limits to everyday Americans…”

Man, who wouldn’t want a taste of that?

So what else do we learn about them?

Well, in not so many words … we’re told that this is effectively a pension plan administrator … for a country where private pension deposits are required, which gives them a steady stream of income.

And we’re told that they make a lot of money off of copper[4] as well — which narrows the countries down somewhat.

And we’re told that they paid a dividend of exactly $2.42 last year … nice and specific … based on a then-share-price of around $25. So that’s a pretty nice yield of 9% or so.

They also tell us that this is the leading company in its business, but that there are other competitors fairly close behind them.

The rest of the tease is almost all generic folderol for income-producing high dividend stocks … lots of stuff about how compounding will make you rich, and how social security is likely to be bankrupt when we need it … and how politicians lie and steal. Yawn … heard it before.

Back to the company — Wiggins believes that this special report, “The World’s Greatest Retirement Stock: A Secret Pension-Payout Plan Even Your Broker Doesn’t Know About” will get you in the door as a subscriber to Free Market Investor.

I believe that’s up to you … but I’m pretty certain that this particular “secret pension plan” company is …

Ouch! Have to turn down the Wisdolator 1100, that’s a bit too much voltage even for the Gumshoe’s mighty brain …

AHA!

This is Administradora de Fondos de Pensiones Provida SA (PVD)

A mouthful, eh? Don’t worry, it’s almost always referred to as BBVA Provida. Much easier.

This is a pension plan administrator in Chile[5] (the plans are called AFPs), which has been among the most quietly successful South American economies in recent years (after some tough times). The country privatized their social security system a few decades back and required every employee to fund their own private accounts, which are managed by a group of licensed pension administrators … of which BBVA Provida (PVD) is the largest. As far as I know, this is the only one of them that is traded as an ADR on the NYSE. Each ADR represents 15 shares on the Santiago exchange.

For one good precise confirmation, the dividend was exactly $2.42 last year … payed semiannually as with many latin american stocks, it was .53 in October and $1.89 in May of 2006. The share price today is a bit higher than last year, and the yield so far is lower — May’s dividend was $1.38. The shares currently change hands at about $28 and have bounced around between $24 and $30 over the last several years. I don’t know what the tax situation is for US investors and Chilean dividends[6], but wouldn’t be surprised if there’s some withholding tax taken out.

It’s not that big a company, even as the leader in its market … but it is reasonably close to book value. If you believe the Yahoo[7] Finance stats it’s got a market cap of a bit over $600 million, with nearly half of that in cash. They have very strong return on equity and profit margin numbers, but I have no idea how reliable that data is (sometimes Yahoo screws up the data for ADRs a bit). The company does file with the SEC so you can get clearer data that way if you like, though unlike some ADRs I don’t know that they have an English investor info website.

If you want a more reasoned explanation of the political situation in Chile that’s possibly leading to a freer reign for these investment companies to invest overseas (foreign stocks can make up no more than 30% of their equity portfolios at the moment), as well as broadening their internal reach with new rules for contributions from self-employed people — and a small note of caution about the political risks for these companies (they were under a lot of pressure not too long ago, though that seems to be easing), you would be well advised to read this article from Institutional Investor[8]. (Don’t forget to come back to the Gumshoe!)

This is definitely an interesting company, and as the ad intimated it’s been secret from me, I had never heard of it before. I generally like the idea of the captive investors that have to fund their PVD accounts and pay management fees (though the fees are quite high, and political backlash or competition could conceivably cut them at some point), and the possibility that the investment marketplace will be broadened for PVD (though that may be bad news for the broader Chilean market, at least in the short term).

I’d want to know a bit more about Chilean demographics — how is outflow likely to compare with inflow for the coming years, since the amount of money managed seems to be the core item of importance here, and how well are they going to cope with broadening the private pension system to incorporate non-permanent workers. Other issues to look at might be inflation if Chile’s government drops the ball at some point, or, more generally, the health of the Chilean economy going forward. On balance, this looks TO ME like a reasonably safe investment in the Chilean economy, with a decent yield and a captive market and some potential upside.

But what it looks like to me is irrelevant — what do you think? And these privatized pensions exist in other countries, too, anyone know of any other good administrators that might be trading at decent prices? It’s certainly an interesting business … especially in countries where the retirement[9] boom, if any, is a long time in the future.

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