The Truth About the FHSA: Debunking Common Myths About the New Savings Plan for First-Time Home Buyers

 In my previous post, I introduced you to the First Home Savings Account (FHSA), a new type of registered savings plan that can help you save for your first home faster and easier. 

Since then, I’ve received some questions and comments from you about the FHSA and how it works. I’ve also noticed some confusion and misinformation about the FHSA in the media and online. So, I decided to write this follow-up newsletter to clear up some common misconceptions about the FHSA and help you make an informed decision about whether it’s right for you.

Myth: The FHSA is only for low-income earners.

Fact: The FHSA is available to anyone who meets the eligibility criteria, regardless of their income level. However, the FHSA may be more beneficial for those who are in a higher tax bracket, as they can save more on taxes by deducting their contributions from their income. The FHSA may also be more attractive for those who live in areas where housing prices are high and saving for a down payment is challenging.

Myth: The FHSA replaces the Home Buyers’ Plan (HBP).

Fact: The FHSA does not replace the HBP, but rather complements it. You can use both plans to save for your first home, or choose the one that best suits your needs and goals. The main difference between the two plans is that the HBP allows you to withdraw up to $35,000 from your RRSP without paying tax, but you have to repay it within 15 years. The FHSA allows you to withdraw up to $40,000 from your account without paying tax or repaying it, but you have to contribute to it over time and earn investment income.

Myth: You can use your FHSA for any home purchase.

Fact: You can only use your FHSA for your first qualifying home purchase. A qualifying home is a property located in Canada that you intend to occupy as your principal place of residence within one year after buying or building it. It can be a single-family home, a semi-detached home, a townhouse, a mobile home, a condominium unit, or a share in a co-operative housing corporation.

Myth: You can withdraw from your FHSA anytime.

Fact: You can withdraw from your FHSA at any time, but only for the purpose of buying or building a qualifying home. If you withdraw from your FHSA for any other reason, you will have to pay tax on the amount withdrawn and you will lose your contribution room permanently. You will also have to close your FHSA within 30 days after withdrawing from it.

What You Need to Know About the FHSA: The Ultimate Savings Plan for First-Time Home Buyers

 If you are dreaming of buying your first home, you may be wondering how to save enough money for a down payment. The good news is that there is a new type of registered savings plan that can help you achieve your goal faster and easier: the First Home Savings Account (FHSA).

The FHSA is a tax-advantaged plan that allows you to contribute up to $8,000 per year and up to $40,000 over your lifetime to save for your first home. You can deduct your contributions from your income tax, just like an RRSP. And you can enjoy tax-free growth and withdrawals from your FHSA, just like a TFSA.

The FHSA is designed for prospective first-time home buyers who meet certain eligibility criteria. You can open an FHSA starting April 1, 2023, and you can withdraw from it at any time to buy a qualifying home. You can also transfer funds between your FHSA and other registered plans, such as your RRSP or TFSA.

The FHSA can help you save for your first home faster by harnessing the power of compounding and tax-free saving. For example, if you contribute $8,000 per year to your FHSA for five years and earn an average annual return of 5%, you would have over $46,000 in your account by the end of the fifth year. That’s more than enough for a 10% down payment on a $400,000 home. And you would save over $9,000 in taxes compared to saving in a non-registered account.

To illustrate this point further, here is a chart with possible outcomes based on different annual returns:

The chart assumes that you contribute the maximum amount of $8,000 per year to your FHSA and that the annual return is compounded annually. The chart does not take into account any taxes or fees that may apply to your FHSA investments.

As you can see, the higher the annual return, the faster your FHSA balance grows. However, higher returns also come with higher risks and volatility. You should choose your FHSA investments based on your risk tolerance, time horizon, and financial goals.

Senvest $SEC - Small-Cap Hidden Champion #1

If you are looking for a hidden gem in the Canadian market, you might want to take a closer look at Senvest Capital (TSX:SEC), a diversified holding company that invests in public and private equities, real estate, and other assets.

Senvest Capital has a track record of generating impressive returns for its shareholders, with an annualized return of 17% since inception and a cumulative return of over 2,000%. The company has a value-oriented investment approach that seeks to identify undervalued and overlooked opportunities across various sectors and geographies.

One of the main drivers of Senvest Capital's performance is its stake in two funds, Senvest Master Fund and Senvest Technology Partners, which are consolidated into its accounts. These funds invest primarily in small and mid-cap companies with high growth potential, often taking concentrated positions in their high conviction ideas. Some of their largest holdings as of December 31, 2022 were Paramount Resources, Capri Holdings, Marriot Vacations, Tower Semiconductors, QuidelOrtho, Ebay and SolarEdge Technologies.

Some of Senvest Capital's previous investments have also paid off handsomely, such as its stake in GameStop, the video game retailer that became the target of a massive short squeeze orchestrated by retail investors on Reddit's WallStreetBets forum. Senvest Capital reportedly made a $650 million profit from its GameStop investment, which it exited in January 2021. Another successful exit was Spotify, the music streaming giant that went public in April 2018. Senvest Capital was one of the early investors in Spotify and participated in its Series G round in 2015. 

Senvest Capital also has a portfolio of real estate investments, including self-storage units in Madrid, Spain, as well as investments in private real estate companies, trusts and partnerships. These investments are measured at fair value based on external valuations from third party appraisers.

As of December 31, 2022, Senvest Capital had total consolidated assets of $5.7 billion and total equity of $1.6 billion. The company had a net loss attributable to common shareholders of $326 million or $131 per share for the year ended December 31, 2022, compared to a net income of $733 million or $289 per share for the previous year. The net loss was mainly due to the negative change in fair value of equity investments and other holdings, which totaled $810 million in 2022 versus $2.4 billion in 2021. This reflects the volatility and choppiness of the financial markets amid the ongoing pandemic and geopolitical uncertainties.

However, I believe that Senvest Capital's long-term prospects remain attractive, as the company has a solid capital structure, a diversified portfolio of high-quality assets, and a proven ability to identify and capitalize on emerging trends and opportunities. The company also has a shareholder-friendly policy of repurchasing its own shares through normal course issuer bids when they trade below their intrinsic value.

As of April 6, 2023, Senvest Capital's stock price was $327 per share, giving it a market capitalization of $810 million. This implies a price-to-book ratio of only 0.51, which is significantly below its historical average and its peers. I believe that this represents an attractive entry point for investors who are looking for exposure to a well-managed and diversified holding company with a strong value proposition.

Disclosure: I own 2% of Senvest Capital's shares in my personal portfolio and I intend to hold them for the foreseeable future. This is for informational purposes only and does not constitute investment advice. Please do your own research and consult a professional before making any investment decisions.

2021 Portfolio Update

It's been another tumultuous year on the health & well-being side. But the financial markets have been on a tear since the March 2020 lows. After a lot of navel-gazing on Twitter, I felt left out since no one asked for my portfolio update? 🤣 

Update on Africa Opportunity Fund $AOF.L

 * Disclaimer, as a Canadian Investor I am no longer able to add to my position via the OTC market. As a result, I buy into the current NAV discount opportunity. I had accumulated a small position in 2018 with the average price of $.60

Quick update:

This closed-end fund is winding down in a year. The current book value per share (as of June 04, 2021) is $1.099 (USD) and the stock is trading for $0.57 (USD). 

The NAV discount opportunity just got even better since the last posting of the topic. It is important to highlight the fund owns a lot of illiquid African public and private companies. These stocks should benefit from a reflation/reopening trade that is currently the active theme within the market. 

The management is significant shareholder in the fund and the incentive aligned is shareholder friendly for a winding down process. 

May Monthly Report 

Africa Opportunity Fund Limited $AOF.L

*Disclaimer, I have a very small position in this fund. Been a shareholder since 2018 and the average cost per share $.60 (USD).


Quick Takes
1. This stock is illiquid and trade at the London Stock exchange.
2. The book value is $0.821 (As of May 21, 2021) and the stock price trades at $0.52 (last trade)
3. The fund is liquidating its positions and returning cash by June 2022
4. The fund holds illiquid African equities (frontier market)
5. Great Capital Allocator (Fund manager: Francis Daniel
6. Expected Return of 57% CAGR (By June 2022)

Quote from 2020 Annual report "The shareholders of Africa Opportunity Fund (the "Fund" or "AOF") held an extraordinary general meeting in June 2019 to decide on the future of the Fund. They voted to realize the assets of the Fund over a three-year period ending on 30 June 2022 and for those realized assets to be returned to shareholders, whether by intermittent compulsory redemptions or other forms of shareholder distributions"

Senvest Capital $SEC $SVCTF

Deep Value Stock Alert

*Disclaimer I have been a Senvest Shareholder since December 2018. My average holding cost is $194 (CAD) and recently double my position in 2020. Making it 44% of my overall portfolio. 

 Company Overview

This TSX-listed company has increased threefold since the depths of 2020 market correction has yet to fully price in 2021 Q1 book value increase. As a North American investor, you can be forgiven for never having heard of this obscure company before. 

Based in Montreal, it had spent the first two decades of its life as an electronic firm before the current management switching to investments in 1997. The quarterly filing doesn't seem to get much fanfare even as the book value increased 17% over the course of its time. Most of the days, there are less than 100 shares traded and with insiders holding more than 50% of outstanding shares, I often wonder why the company even tries to stay public?

As of May 7th, 2021 the shares are listed at $320 (CAD) with a book value of $646. This discount to book value is incredible when investors seem to be piling into growth stocks at 20 times revenue multiples. With such a high book value discount, you might expect this firm to be holding stakes with level III pricing (i.e junk bonds, CDOs, or private firms). Instead, the largest holdings are public traded equities such as eBay (EBAY), Tower Semiconductors (TSEM), Marriot Vacations (VAC), Capri Holdings (CPRI), Paramount Resources (POU), Silvergate Capital (SI), and Seven Generations Energy (VII), which merged with Arc Resources (ARX) in April 2021. The full list of stock can be estimated from 13 filings they have to publish with the SEC. 

While I content the holdings are concentrated with Top 20 stocks exposed to 75-80% of the portfolio. This is far crying to ask for a 51% discount to book value ($646), in other words, if the firm became private or sold all their equities and have the proceeds to investors they would double from the current price of $320. 

I personally doubt this illiquid premium would last for much longer as Canadian investors figure out that the asset management is similar to ONEX, KKR, or Brookfield. Although as an investor, you won't get all the profits, even at 60% that's enough to move the price well above book value.

For example AUM (outside capital) increased from 1,477,779 (2020) to 2,580,334 (2021/Q1). Historically the firm has charged 1.5% in management fees that would equate to $38.7 in annual management fees. Senvest investors would receive 60% of that final amount but it would advisable to add a 10-15X multiple on this amount and add it to book value. This number isn't pulled out of thin air, since KKR merged with Oaktree with 20X multiple on their management fee stream. The asset management business is quite sticky and Senvest's 17% YoY performance is a brand worthy in institutional investor circles. 

The key takeaway is the deep discount to book value. It would be noteworthy to point out the key man risk and the high concentration of insiders within the fund. The fund also uses leverage to enhance its returns. 

These were just my quick thoughts on Senvest. I will keep you posted on other obscure Canadian-listed companies.