10 thoughts on “Playing Games with LIC Performance Reporting.”

  1. Franking credits are an interesting issue as well. The argument being that you need to gross up their (LIC) returns so it’s on a like-for-like basis with unlisted managed funds (which just act as pass-through vehicles so are gross of tax). To my knowledge, a number of sources that report LIC returns do not do this (e.g. Lonsec/Morningstar) which arguably disadvantages LICs on a like-for-like comparison.

    Good read though and it’s crazy but not too surprising how much different managers will try to play around reporting. I recall SNC, for example, talking about net-of-fee reporting at their AGM in 2017 (still not done though…)

    1. Yes it’s a good point about franking credits and I can understand how AFI would want to incorporate that in their performance reporting. What they have done here is more appropriate in many ways. The other side to it is that this issue is not a new one, so one wonders about why they change the format now and not years ago? Also it is rare for other managers to report this way. This could mean some readers quickly glance at their current report assuming that it is not including franking. They may come way thinking they have done better than they actually have.

      Last I heard from SNC is that they didn’t like reporting after fees numbers because there is no requirement for competitors to do the same. I think Wilson are in the same camp. They would prefer it is compulsory to present the numbers after fees but won’t change whilst other managers are still allowed to report them before fees. I think any LICs would be better off presenting them after fees regardless. It helps you stand out as telling the true picture to shareholders. Particularly these 2 who I believe in the long run will have good after fees numbers. They often are running activism campaigns on other companies so I think it would be good from that perspective also, lead by example.

      1. Fair points too in all honesty. I’m surprised there hasn’t been at least some notional effort to guide this niche of the investment industry on good practice but I suppose it hasn’t been viewed as big enough to deserve even that attention. It is interesting to contrast against ETFs though which have been focused on reporting net performance (on a mostly consistent basis).

        Another one that’s tricky to unravel is the impact of options on both NTA and underlying investment performance with mixed reporting (or none at all). APL stood out for that this year and they only started to report quite late relative to option expiry.

      2. It’s all a bit of a mess and often more so when options are involved.

        Yes it looks like APL are being quite upfront with all the info now. As you point out though going back earlier in the year they were using a different format, being a bit quieter about the effects of the options. Some quote a NTA assuming all options would be exercised but I think they chose not to do that earlier on.

        I think most others in their situation right now (lagging the benchmark), would choose to present the numbers in a more flattering way. Eg portfolio pre taxes, fees, other costs and not counting the dilution effects of the options. So they seem to be taking a more realistic approach than most now.

      3. Just noticed CIE lagged their benchmark by about 9% in 17/18. Magically all of a sudden the comparison to the All Ords accumulation index disappeared a few months later from their monthly NTA reports.

  2. Speaking of Contango I noticed something interesting with their international LIC in WQG. The asterisks started appearing on their performance tables in the second half of 2018 all of a sudden. Seems like they are excluding the cash balance from their figures. “The company’s operating bank account balance is excluded from the portfolio value”. I wonder if they would do this if the markets and their portfolio happened to be negative since inception? They do run small cash balances but still seems strange.

  3. ALI look like they are embarrassed about lagging their benchmark since inception. This quarter they now choose to only display 2018 figures where they did ok. Since inception numbers have vanished from the usual quarterly update.

    For the first time they throw in the ASX 200 accumulation comparison, just because that index had a rough time of late.

  4. August 2018 saw EAI introduce a new asterisk where any dilution from options being exercised would be excluded from their numbers. They are also comfortably lagging their benchmark.

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