12 thoughts on “ASX LIC Performance Comparison – Not A Happy FY19”

  1. Hey Steve, Interesting that the Commsec SMSF list did not have the $1.15 billion AUI which had a reasonable year. They need to get cracking on the marketing as they have always been under the radar. Ha ha.

    1. Good point Eddie, that one often goes under the radar a bit.

      In checking AUI I get a figure of 10.9%. Of course once again this is just shareholder return so I don’t know whether their discount widened, quite possibly.

      I suppose one point I was trying to get across is that in the last couple of years many were investing in LICs with little regard of the effect discount widening can have. Common view was it doesn’t matter if you are holding for a decade plus. A bit of truth in that but the way the sector has gone tells me some investors have changed their tune. Eg same buyers found out they didn’t like how the discount widened or got scared out and sold because of the franking uncertainty. Or now believe these LICs can’t add any alpha.

      Others of course are truly long term LIC investors and may well not care too much about the discount widening trend in 18/19.

      1. I agree. AUI is an old school LIC and I think that the discount has narrowed off the top of my head over the least 18 months. I think that some of the more newer LICs have more volatility in terms of shareholders bailing whereas the older ones have had shareholders just getting their dividends and not worrying about discounts as long as the share price doesn’t get smashed.

  2. Hi Steve,

    Excellent post as usual.

    I’m surprised even with FOFA etc that the LIC IPO bonanza / share raisings have gone on strongly for so long. I expected a repeat of the pre-GFC LIC consolidation / clean out to have commenced by now. Rest assured it’s coming. Although not my thing nowadays participating in activism plays should not be too difficult as one can simply piggyback off the likes of Wilson. WAM will have enough LIC activism opportunities to keep it busy for the next decade.

    Can’t say there’s much to interest me in the market given it’s strength. Fortunately our existing long term equity holdings throw off far more income than we need. Being in the early stage of retirement we are being very conservative in holding a very substantial allocation of cash. In no hurry to deploy that into the market until risk / reward is very much in our factor.

    Cheers

    1. Hi Nodrog,

      Thanks for commenting, I am also surprised at the number of new LICs that keep popping up. There was a few fixed income ones that jumped on the bandwagon in the last year or so from memory. I’d avoid paying NTA for them.

      When you launch say in for example 2015 with a 10 year IMA, perhaps with a hefty break fee it gets you a free lunch for a while of counting your base fees coming in the door. Throw in a stake from management and friends that “align” interests to shareholders (translation – blocking stake), and it can keep the activists away for awhile. Later on though as it becomes harder to hide from the true performance of the LIC, the pressure heats up as these factors don’t save them. Therefore I think the LIC numbers reducing might be more a trend for say 2022-2025.

      The way you describe your situation it makes sense to not necessarily be 100% invested. Sure this could lead to more chance of underperforming certain indexes but who really cares?

      A bigger dilemma is probably for those around 30-40 yrs of age hoping to build wealth and achieve higher returns. The starting point of valuations here looks to make that tough. Plus from a behavioural point of view investors of this age may not necessarily appreciate how falling markets can mess with your thinking. Or how good concepts can be taken a bit too far on occasions eg US index investing, tech sector in 1999.

      If I was 35 with a decent salary I suppose I would be virtually fully invested rather than a higher than normal cash balance that I do. I wouldn’t borrow to buy shares though. Yet I see on some forums there is a NAB equity builder product that is getting more popular by the day.

      Cheers
      Steve.

  3. a few comments:
    1. active management fees are collapsing with many active managers closing. Highlights the high fees for LICs.
    2. RBA cuts have driven a wall of money into the market. Benefits passive and domestic in the first instance. Active / international lagging.
    3. The comments about 1% fee leading to 10% discounts etc – good way of illustrating that you need outperformance to reduce discounts.
    4. Agree there will be consolidation.
    5. I think there is reasonable money to be made. My core holdings include MFF (lower cost than their ETFs, Chris Mackay both humble and astute) and WQG (like their process, good returns, issuance now done, local marketing efforts may step up).
    6. PIA and NSC both interesting. Both buying back to reduce fee drag.

    1. I agree with all your points there Ed.

      Seems to be more hype about the other Magellan Listed ASX product’s although I’ve thought that MFF might be the preferable product. Sadly many years ago I took some profits in MFF and sold it all.

      WQG has at least got the options issue out of the way, even though I thought they didn’t handle that well (unsurprisingly). Have done a good job picking stocks though. I suppose with these two one should just keep in mind the large US focus and tailwind that has given them. That’s different from something like PIA who would be more likely to invest in other markets.

      I’ve got tired of suggesting US markets could underperform as I’ve been horribly wrong in saying that before! Just worth being aware of your portfolio tilts if for example you ran with just MFF and WQG for global exposure.

      PIA and NSC have had their temptations for me in recent months but I don’t hold at this point. IMA for PIA I think is still a very long one (late 2020s?) might be something to check. Ideally I prefer not to have these long agreements in the background. To a lesser extent this IMA issue exists with NSC and a break fee in there. Then there is a matter of dealing with convertible notes outstanding for NSC. Both have seen some of the largest discounts in the LIC space so worth keeping an eye on. Still baffles me that plenty of investors happy to buy NCC though.

    1. Hi Baz, thanks for commenting. I think BAF has returned 22% since this blog post. I’ve fared a bit better as I got them cheaper in the weeks prior. Plenty of LICs that I’ve discussed that I own on this blog have disappointed me, but BAF has fared well thus far. Cheers, Steve.

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