LIC Performance Comparison ARG v AFI

Time for your medication SK:

 

Ok, fair enough they are trying to outperform an index fund..

-Frank

 

I ain't the one who requires medication or tissues to wipe a two year old's snotty nose.

 

Unfortunately the odds of any active fund Mgr “consistently” beating a plain vanilla index fund in a similar space is very low. Hence if an actively managed fund underperforms the index for long enough some investors get disillusioned then end up selling potentially at a bad time. So for those prone to behavioural weaknesses best just stick to index funds to avoid this outcome.

Another issue with big popular LICs like ARG / AFI is that they can often trade at a price greater than the underlying assets. So unless investors understands this they may end up over paying for the LIC likely guaranteeing even greater underperformance against the index.

One advantage of LICs is potentially smoother dividends. This does not necessarily mean “more” dividends but simply less volatility. At a given time sometimes less than index funds and at other times greater. An investor can achieve a similar outcome by maintaining a cash buffer.

I like index funds and LICs but overtime have come to the conclusion that for many investors who want the simplest approach and a more reliable outcome best stick to index funds.

 

Well, not that I'm being nosy but again just for my own education. If an index fund can give you a more reliable outcome then why is it you are sticking with LICs? Is it just to be a bit more diverse?

-Frank

 

LICs generally give more “reliable” / consistent dividends but not necessarily greater than that of index funds.

Some of us understand how LICs operate eg trade at premium / discount to underlying assets which at times can provide opportunities including those of a tax nature. Strictly optional however. I would not suggest this worthwhile in your case, it would just create greater confusion and potential harm.

 

Got it, thanks.

So why do some people own multiple LICS that are similar. Like why would someone buy both ARG and AFI ?

Looking at AFI.. Share price $5,69 and NTA $5.18 - This is trading at a premium right?


-Frank

 

Yes. Index funds always trade very close to the value of the underlying assets so unlikely to ever be paying a premium. Keeps it simple.

 

Frank instead of continually asking questions why don't you sit back and, after a ponder, give us your thoughts on the matter.

Nobody is here to do your thinking for you mate. So far I've not seen any such contribution from you.

 

So I am assuming based on your questions about whether LICs outperforms the index that the portfolio you have put together with your advisor has had history of outperforming the index?

Cheers,
Oracle.

 

Well no, the portfolio is put together to achieve my goal not to outperform the index. Outperforming the index never had anything do with it.

The holdings of the portfolio however, I doubt will outperform the index but I'm sure that the holdings are there to diversify and help manage risk.

-Frank

 

I'm not asking anyone to think, I'm just asking a few questions.

Its been a long journy from not knowing what an index is, to trying to invest my inheritance without losing it. So my apologising for not contributing but I just don't know enough to contribute.

Originally everyone here was on about LICs and Peter Thornhill and whatever other advice and although it came with good intentions I just didn't understand it.. everything was overwhelming considering where I was coming from.

Anyways almost 2 years later and I know a lot more not. Did a lot of reading, researching and have become comfortable.

So here I am now that comfortable with investing that I am questioning why I should invest in LICs if they aren't beating an Index fund. Thats all I'm doing. I'm not picking on LIC's in a negative way.

I understand that you and others here are big fans of LICs and I'm not trying to be a smart arse asking 'Why bother with LICs' Im actually asking a genuine question!

Nodrog and others helped me answer it anyway and we move on from that..

I was going to ask peoples thoughts on MIR, small cap because I remember some of you were invested in it but now I'm too scared to ask


-Frank

 

Good stuff.

 

I think you have answered the above question in your below post.

Not everyone invests in LICs to beat the index just like you with assistance from your advisor have built a portfolio that you know will not beat the index but will achieve other goals.

Cheers,
Oracle.

 

Small caps are generally the riskier end of the market and well and truely “optional”. Perhaps consider keeping it simple, get the basics right then forget about the market and enjoy life with the income / capital from your invested inheritance.

 

If you have the broad market such as VAS or similar those small caps would already be in it. MIR is concentrated in that aspect.

I wouldn't worry about not having it.

 

Not advice, just one way you can do it given your history:

50% VAS (Australia) and 50% VGS (around 50% USA and 50% rest of the world) and be done with it Frank. Don't worry about LICs, small caps or anything else. Don't worry about market timing other than a simple dollar cost average method. If you have the inheritance money available now put 50% in tomorrow and dollar cost average the other 50% in at a rate of 10% per year, with each 10% increment locked in a term deposit equivalent to the time at which you want to invest it (i.e. 1,2,3,4,5 years). That way if this is as low as we ever see again you win because you invested a big chunk, but if it does collapse for an extended period you have money to invest at bargain prices and feel good. Lump summing everything at once is tough psychologically.

I say the term deposits because that makes it easy psychologically if you can't trust yourself to follow the plan - when each term ends put all of the money in the market that EXACT day. No "maybe tomorrow" or "surely my adviser's tea leaves no more than the market about pricing".

We may not be at the bottom but the odds are we're closer to it than the top. Noone knows.

 

Not trying to be silly, just trying to give you Frank an analogy that makes sense to you: to me the question you ask why one invests in say ARG but not VAS is a bit like why one drink green tea and others like black tea, sometime it’s about what you want which is different from what’s others want.

You obviously have learnt a lot more than two years ago but perhaps not enough to distinguish the minor differences in each type of fund/stock.

When I first started I spent solid 6-7 days reading through most threads in the Other Assets section of PC plus other sites then form my old plan based on my own situation.

 

Perfect!

I'm 25% invested in a similar way you're suggesting but via VDHG. VDHG has some hedging in its 'VGS' component and also a few other useful things except , I'm not a fan of the bonds and fixed interest contained within it but its not a lot.. 10% I think.

I will consider investing in VAS and VGS separately, I'm just concerned about the currency risk

Heres VDHG


But, you have inspired me to just stop thinking and invest another 25% bringing it up to around 50% and yep DCA the rest over time unless I see a big dip in which I'll put more in.

But I like to mix it up a bit so I might do 50% VDHG (or VAS VGS) and 40% ARG/AFI and then with the remaining 10% invest it in 10 direct good quality stocks. CBA, MQG, WES, WPL etc.. Across a few sectors..

Anyways as always thanks everyone for your help.


-Frank

 

Thats exactly right