I have commented on the CYA situation numerous times on the blog. One of the reasons I started blogging is I find it a useful discipline to force me to go back and look at my notes when I entered a stock. I first purchased CYA in September last year thinking that over the next year or two it was highly likely Wilson would gain control.
I felt at the time the most likely plan was to merge it with WAA because the size of WAA was quite small. I was wrong on this point. I wonder if this was to do with satisfying the same business test for the tax losses.
Anyway, I thought if it would get combined with WAA, then there was potential for CYA to trade at close to a 10% premium to the before tax NTA. (WAA can sometime fetch that sort of premium). Since in September CYA was trading at a 6% discount, I suspected there was a good chance of a potential pickup of 16% in total over the next year or two on top of the performance of the ASX200 (CYA often closely tracks the benchmark). Here is the post from back in September.
Today I estimated CYA may have traded at a premium of as much as 4% to pre-tax NTA. I think therefore I may have achieved an extra 10% uplift, rather than the 16% I speculated on above. Given that it turned out CYA was to more closely resemble WLE rather than WAA, it probably makes sense to temper the expectations of this 16% pickup.
Unfortunately, I couldn’t get much more stock in September as volumes were thin. From those levels CYA has returned close to 20%, versus the benchmark’s 10%, hence the extra 10% pickup. Surprisingly, even after Wilson announced the plans in November, CYA regularly traded at a discount of 3% or so. So I acquired more this year probably around the 92-cent level from memory, still a handy return including 2.7 cents in dividends.
As you may have guessed with the tone of the writing above, I now have sold my CYA holding. I thought is interesting to note the performance of the Wilson stable since April 13th. Here is a little snapshot I came up with, hopefully I have my numbers correct.
PERFORMANCE APRIL 13 TO MAY 29
CYA (included 2.7 c divs) : +1.2%
WAM : – 5.3%
WAX : – 7.2%
WLE : – 0.2%
WAA(included 2.75 c div): – 2.8%
ASX200 : -3.1%
CYA has outperformed despite the Wilson management being forced to hold a larger weight in the banks in CYA (May has been a terrible month for the banks), to wait for the tax ruling about the continuity of business tests.
Even though the WAM & WAX premiums have come back quite a bit here, I still think they will converge a bit further towards CYA & WLE. Lately I have used some funds on some other opportunities, and my rationale for holding CYA has largely played out so hence selling.
Soon CYA will announce the details of the raising which I expect will be successful. Good luck to those who continue to hold, I may well have sold too early, we shall see.
With a bit or a lot of luck, I will get some WAM Microcap shares in the IPO, which I guess will at least start off well. Not sure If I stay with that for the long term. What shall be interesting will be if Wilson ever gets something going in the international space. I have certainly read many commenting about whether they are spreading themselves too thin with resources to cover all these LICs. They have responded by hiring a lot more staff and certainly have the appropriate answers to these questions. Yet if you still decide to buy at 20% premiums to NTA you certainly do not want the market to have any doubts over these issues.
The above post might be considered a bit of a boring trade story. I see that extra 10% pickup over the ASX200 in 8 months quite significant given the low risk that the CYA discount to NTA was going to get any wider than it was in September last year, and that Wilson was quite likely to make a move soon. I also view the outperformance of CYA versus WAM & WAX in such a short space of time quite significant.