LIC and NTA question

Discussion in 'Other Asset Classes' started by xanh, 27th Nov, 2015.

Join Australia's most dynamic and respected property investment community
  1. xanh

    xanh Active Member

    27th Jun, 2015
    I've been reading about LICs and been thinking about investing in ARG or AFI. I notice that these two are trading at a premium to the NTA currently. My questions are:

    Would I be correct in thinking that when the market drops, the LIC's NTA also drops?
    If that's correct, it would follow that when the market goes up, so would the NTA.
    Would that then mean that one would have to wait until the market goes up in order to buy the LIC when its trading at a discount or parity to the NTA?
    If I wait until that happens then I would be missing out on some growth.

    If my assumptions are correct, it seems like I would have to choose between the amount of 'premium' and the amount of growth in the market that would be required before the LIC would be trading at around the NTA.

    Does that make sense? I'm not sure how else to describe it.
  2. mimosa

    mimosa Active Member

    18th Jun, 2015
    You are roughly correct that the NTA of a broad-based LIC such as ARG, AFI, or MLT moves in line with the market (let's say ASX 200 / AJO), but to be more precise the NTA moves in line with the value of the LICs holdings (prices of underlying holdings plus any cash). The distinction becomes particularly important for specialist LICs such as those that invest only in Chinese shares, or a hypothetical LIC that avoids resource stocks.

    So, the NTA moves according to the value of the underlying holdings.

    What makes the share price move? Investor sentiment, demand, which way the wind blows . . . Not necessarily anything to do with the overall market.

    I've seen CTN discount decrease right after they did an investor drive (increase in demand) and MIR premium decrease right after it peaked at around 19% at profit takers such as myself swooped in, even though the NTA continued to rise.

    I definitely keep an eye on NTA premium/discount to identify entry and exit opportunities (exit not so much for ARG, AFI, MLT etc which I consider to be extremely long term holds), but be vary wary of buying a LIC just because it is trading at a discount. There may be a very good reason why it is trading at a discount, and even if there is not a good reason, there may not be a turnaround any time soon.

    Just for fun, I uploaded some charts showing NTA vs price for AFI, MLT and MIR for the past 18 months.

    Make sure you read this thread, Listed Investment Companies (LICs) , if you haven't already, and have a browse of the ASX website. They have some good articles on LICs, including graphs of premiums, discounts to NTA. The big LICS have good NTA information on their websites too.

    Attached Files:

    • NTA.png
      File size:
      157.9 KB
    Last edited: 27th Nov, 2015
    xanh, S1mon and KayTea like this.