LAZY 2020 ASX LIC BASED PORTFOLIO – & reflecting on 2019

The idea for this lazy portfolio experiment was for it to track a portfolio that required little thinking and tinkering. In keeping up with the lazy theme I shall try and make this post relatively brief (well only in comparison to my last blog post anyway), as it is nearing Christmas and time for a break! To those who are not familiar with this hypothetical portfolio experiment, here is a link to the background for how it started.

My number of blog posts dried up a bit during the back half of this year, as my baby son came onto the scene this year and kept me busy! So that is probably a good reason for me to slowly seek out a more time efficient investing approach. One that perhaps involves less researching time and sticking with stocks I can own for longer periods. In 2019 though it was my more active ideas that I spent more time on that served me far better. It can be nice to feel like some work has paid off but on the other hand inconsistent with the direction I want to tilt things to! I think that given the more active ideas are doing far better for me lately I don’t want to give up too much time I spend in this area.

ASX LICs premiums  / discounts

Regarding this lazy portfolio experiment, I will just flag a small change here further down in this blog post. I must admit though the way 2019 has panned out it is convincing me that higher fee LICs need an active approach. The calendar year saw a lot of volatility in discounts / premiums of various LICs. I wrote about the longstanding fickle nature of the LIC sector here . This experiment only gets one shot a year so it couldn’t pick up any of the discounted LICs mid-year. It was a tough point in time for the LIC sector, as I discussed mid-year in this blog post about a comparison of ASX LIC performance.

Despite my poor excuses I still consider this hypothetical portfolio a big disappointment thus far (versus the benchmark anyway). It has produced almost 9% per annum returns versus the ASX300 equivalent of about 15% per annum. Then again if someone said I was guaranteed to earn 9% per annum for the rest of my life I would probably happily take that (well assuming inflation isn’t crazy), regardless of what any benchmark may do. The experiment is less than a couple of years old though. Given that I described it as a conservative “all weather” type portfolio, perhaps I would have thought it could capture at least 80% of the market return in such a bullish environment. I might have considered that almost a “pass”, but it has fallen short of that.

Best ASX LICs for 2020?

Forager Australian Shares Fund (ASX:FOR)

One surprise is I think the portfolio spun off about $15k more than I could have imagined from special one off dividends, mainly because of (ASX:REF). As the objective is to be lazy, there is just one thing to do. One of my preferred LIC picks (or LIT) for 2020 is the Forager Australian Shares Fund (ASX:FOR). I have therefore made a purchase for this amount to include in the experiment. Price as of last night used which was $1.18. This is better than I personally managed to do when I bought some too early in November.

I wrote a bit more on this in my strawman.com profile if you are interested. I have no affiliation with that site by the way have just found it useful to record some quick thoughts on stocks occasionally. It acts as an investment diary or almost a blog for everyone there in itself. That is probably another reason I have been a bit quieter on this blog the last 6 months. I strongly believe that writing down your thoughts on investing will improve your results over the long journey. It could easily be notes to yourself rather than on any website. I just found a long time ago when I was writing just for myself I tended not to keep it up. Whereas making it a little bit public seems to have made me persist with journaling my thoughts on stocks more. A bit like perhaps when people tell others they just signed up for a gym membership. They are probably more likely to go, at least for a little while anyway!

My tinkering around with my strawman scorecard at least shows some market outperformance, but most users over there seem to be doing even better! A similar theme I noticed when I read about the Livewire site and their reader’s popular picks. A lot of retail investors seem to be shooting the lights out so congratulations to them. Perhaps my greying hair illustrates I am getting to be more of an elderly investor who isn’t brave enough to try on some of the more popular stock picks these days. I am quite happy to point out my stock picks are not as great as most in recent times as I hear more people are likely to read blogs about investor’s admitting their failings!

Best value stocks ASX 2020

I think when summarising (ASX:FOR) on the strawman site there though I neglected to mention that there is the potential benefit of getting in now when they have a long way to claw back their underperformance. That is, they can outperform their nominal hurdle rate significantly form here and you don’t incur the performance fee. Also it may be an efficient entry time tax wise in terms of there being very little unrealised gains in the portfolio, rather it has plenty of unrealised losses. Perhaps Forager themselves might even blog about the discount opportunity. I remember a very honest blog post of theirs highlighting the problems of buying their LIT when it was at a large premium.

Contrarian Deep Value Investing, Spicers (ASX:SRS), Tribune Resources Ltd (ASX:TBR), Blue Sky Alternatives Access Fund Ltd (ASX:BAF), Kingsgate Consolidated Limited (ASX:KCN)

(ASX:FOR) feels a bit uncomfortable for me to write that I have turned bullish on it. It looks a disaster on the share price chart over a couple of years. Perhaps that uneasy feeling in my stomach mentioning is a good thing from a contrarian point of view. Looking at my better picks over the last year or so I see other ugly ducklings like (ASX:SRS), (ASX:TBR), (ASX:BAF) & (ASX:KCN). i.e. the type of investments when you start to tell someone about them, their facial expression looks like they want to leave the room!

Future Generation Global Investment Company Ltd (ASX:FGG)

A disappointing investment has been (ASX:FGG). I read with interest that the company recently is going through a process to gather feedback from many of its investors. I decided to take this opportunity to discuss with them the fact that it is trading at its largest discount to NTA. This is unusual in the LIC space now after discounts have generally contracted somewhat in recent months. My feeling as they have not communicated the investment committee’s strategy well enough.

For example, why have they chosen the mix of funds they hold? Do they outperform historically, will they going forward? Where does that make the top down country, sector allocations sit versus benchmark? Why do they see this as the appropriate top down bets to have? Others may well disagree with my thoughts but if you have any firm opinion on matters the company is very receptive to hearing from shareholders. I congratulate the company for at least listening to me! The current environment is the most sceptical I have ever seen towards active management. If the discount is to close here I think more work is needed on producing comprehensive half yearly investor presentations. I believe the investment committee puts a lot of hard work into their decisions but we don’t get much insight into this thinking along the way.

LAZY 2020 ASX LIC BASED PORTFOLIO

Here is a snapshot of how this portfolio experiment now looks.

Please note that whilst I still hold a large portion of these names directly at the time of writing, this will naturally likely to alter quite a bit over time. That is because the aim of this experiment was to make very minimal adjustments. I was curious to see how such an approach may work with some holdings I still had in 2018 that looked reasonable enough for the longer term.

For instance I completely sold out of Platinum Asia Investments Ltd (ASX:PAI) around mid-2018, and then likewise Argo Global Listed Infrastructure Ltd (ASX:ALI) by late this year. Also I will likely reduce some of my holding in the Australian Leaders Fund (ASX:ALF) via the off market buyback in 2020. Mind you I think such names are reasonable enough for the future in the context of a portfolio that has them, which aims to limit transaction costs, taxes etc.

So please don’t follow this is blindly or take it as financial advice. I doubt many would though given the lacklustre returns thus far, but just in case!

In the spirit of Christmas I would like to end more on a positive note. I also want to embrace the spirit of the investment management industry. That is, seek a benchmark that makes you look better than you are! On that front I have a chart that includes a study that tried to estimate what the average retail investor really returned. i.e. how much worse it looks because on average how they tend to enter managed investment products during peaks of the market and pull out during panics. I will be honest in that I don’t know whether it is very accurate, but found the chart interesting nonetheless. Here it is.

So I am personally comfortably ahead of the average investor over this time period!

Another interesting point is that often asset classes such as REITs, Gold and Oil have their critics, though I most concede they are flattered here from the starting point of 1998.

LICs vs ETFs

Even though I don’t write much about passive ETFs here I am still a massive fan of them. They are probably the right solution for most investors. They have justifiably, and will continue to do so, disrupted away a lot of the closet index hugging larger expensive funds management products. Yet charts such as above are a reminder in my opinion that they are only as useful as those in the driver’s seat investing in them. They require a lot of discipline in staying the course. The above chart may be a hint that the majority of investors don’t possess such discipline, especially dealing with drawdowns.

I guess though if an investor is going in and out of ETFs at the wrong time, or doing it with expensive managed funds, their performance is still likely to be less bad if they choose the cheaper product.

Strong market over the last 6 months

I remarked on the blog mid-year that writing about LICs and microcaps were very unpopular sections of the market. The last 6 months has seen a bit of a resurgence in these areas. That however means less opportunities, so perhaps it is shaping up as an even lazier year next year in terms of writing more on the blog, we shall see.

As this is my last blog post for 2019 I would like to wish readers a Merry Christmas and a happy new year. Thanks for reading my blog this year and hope 2020 is prosperous and happy for you!

Disclaimer:

Please do not go out and copy the portfolio (sure I hear you it hardly shot the lights out anyway but just in case!). I may trade out of the stocks mentioned at any time and not make that clear on this blog. My circumstances and financial goals are likely very different to that of readers. Please seek the relevant personal financial advice from the appropriate qualified professionals before making decisions on your portfolio. Sharesight has nothing to do with the stocks I chose to put in this fictional portfolio! I am not licensed as a financial advisor.

Sharesight Discount

I calculated the returns in this blog post with the help of Sharesight. Readers of this site can save the equivalent of four months worth of fees when they pay for a yearly subscription for the first time if they use the following link you see below.

https://www.sharesight.com/au/valueinvesting/

Please note this is an affiliate relationship between this site and Sharesight so I will receive a small commission.

In 2019 I donated 30% of such commissions to the following charity, https://www.childsdream.org/. I shall do the same in 2020 and thank readers for your support.

5 thoughts on “LAZY 2020 ASX LIC BASED PORTFOLIO – & reflecting on 2019”

    1. Thanks! All the best to you. Let’s hope ASX:UOS does ok, think I remember seeing it as a hold for you. One that maybe we have got right, thus far, touch wood anyway!

  1. Just dropping a quick comment here as I am still curious how this very lazy “all weather” type approach to investing (with a LIC bias) turns out. I am not sure how much I’ll be blogging going forward so I’ll just note the only change for late 2020 here. Noticed the other day that on the assumption (ALF eventually turns to cash?), the portfolio is pretty cash heavy with interest rates a lot lower than when the experiment started.

    Therefore I thought I would throw in a $15k purchase today of CVF to the experiment. This LIC has fairly good risk / reward characteristics for from this level going into 2021 in my opinion. It is pretty defensive at the moment holding plenty of USD cash. It is at a large discount, some tax losses to utilise and plenty of franking credits to continue a strong dividend stream. The board seems to be acting fairly in conducting a strategic review to address the discount. I have noticed GVF have accumulating this one and expect them to work to get a good solution. One possibility might be a scrip takeover by GVF would likely be a reasonably good outcome.

    As I write this lazy portfolio experiment hasn’t been that exciting. As I am writing this comment it has just matched the index (an investment in VAS for example) and doing around 6.5% per annum. Having said that this lazy portfolio has been much steadier thus far, not getting to the same highs pre covid as the market but fell nowhere near as much during March.

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