LIC's vs ETF's Historical Performance

Hi guys,

Complete newbie with shares so I apologize for silly questions.

I've been personally thinking between investing in Australian LICs Vs VAS. I'm leaning towards VAS for the following reasons:

1. I think investing in LICs would require much more effort and learning from my side. It would require require timing to purchase shares at a discount to NTA and this will delay my lump sum investment and potential returns,
2. I've been looking today at the 10-15 yr performance of big old Oz LICs to AUS200/300 (close to VAS I suppose). From what I could see lics performed very close to VAS. I attached the screenshotts.

In summary, they compared like this:

1. BKI outperformed ASX 300 over the last 12 yrs (11.3% vs 9.6%),
2. AFI outperformed ASX 200 over the last 10 yrs (5.1% vs 4.3%),
3. ARGO performed same as ASX 200 over the last 10 yrs,
4. Milton performed close to All Ordinaries Index over the last 15 yrs (both at around 8.6%),
5. Whitefield slightly underperformed ASX 200 Industrials (4.9% vs 5.1%).

On the flip side, LIC dividends are fully franked whereas VAS dividends are franked I believe at around 75% level.

Is this really a draw?

 

VAS or LIC, probably not much difference over the longer term 10yrs+ as you have shown.

However this is probably not the best time to be entering stocks as its pretty close to all time highs. Upside limited whilst downside is pretty much assured. A bit like entering the Sydney property market now. Whether VAS or LIC you'd probably be buying at the peak.

The trend nowadays though is more and more towards ETF and indexing as it has been shown that over an extended period, majority of fund managers do not outperform the market. Most of them are just out to make the 2% of fees off your money.

 

Thoughts, not advice.

First up if you had read the attached guide I thought I'd suggested earlier you mightn't need to ask a number of these questions.

Based on your concerns VAS is easy to get started with. For Aussie exposure you can just leave it at that and top up when cash available.

Once started If you decide to invest in LICs (optional) then some use a simple rule like this from page 11- 12 of the attached guide:

 

Ok, thanks. I think I just read a shorter, 7 page version of that document.

Time to do some bed time reading now..

 

Another example which shows WHF vs ASX 200 (essentially VAS index performance) over 30 years:

 

Fair enough you probably saw version 1 which was much shorter. My apology.

 

Does this chart maybe come with some average net growth numbers over that period?

 

I agree. But if you read carefully you will see that quite a few fund Mgrs beat the index BEFORE FEES. High Fees are the killer in many cases. Some of the older LICs have fees around the same and even less than Index ETFs such as VAS. Also they tend to have very low turnover and buy and hold for the long term. Similar to the index. But unlike the Index they're able to avoid the rubbish and tend to hold stocks that pay more reliable dividends.

The biggest advantage is being able to buy LICs at a discount at times. Do this often enough over the long term will speed up the wealth accumulation process.

 

Meant to add that chart / data doesn't include franking credits. WHF is 100% franked whereas the ASX 200 from memory is be around 75%. So that gives WHF an additional performance boost not reflected in the data.

 

Nice. Whichever index/LIC we picked 30 years ago, we couldn't go too wrong.

Is there a tool/Web site to create these charts? It would be interesting to add to that chart other major LICs and corresponding indices.

 

Price charts easy but no not for accumulation data (ie dividends reinvested).

Even if the LICs only perform around the same as the Index buying them whenever possible at a discount will give you outperformance.

I think you're over complicating the process which will lead to analysis paralysis. Again I come back to keeping things simple (eg dollar cost averaging) and:
1. Buy VAS OR
2. Quickly check the older LICs for discount (it's easy once you're familiar with it). If at a discount buy the LIC otherwise buy VAS.

Not advice.

 

Apart from buying at opurtunistic times such as drops, shouldn't the market always be at highs compared to past?
You saying the market now is over inflated in P/E ratio? If so that would mean lic's would also be over inflated whilst still trading at a discount?

 

Hi @Realist35

Enthusiasm is good. But at some stage you will need to get over the need to invest in the perfect product and make peace with a certain degree of uncertainty.

A couple of Thornhill quotes below might be useful.

1. I do not use index funds or ETF’s for the simple reason that there are stocks in the index I don’t want to hold; resources and property. I use listed investment companies as a core holding with one basic rule: They must have been going for at least 50 years. Added to this is a smattering of direct shares.
2. As we never sell our children and the charities that will benefit can agonise over whether we could have tweaked the performance by frigging around with our holdings.

NOT advice.

 

But I think in the main this strategy is not about timing the market, other than to buy in dips. I think strategy is hold forever and just keep buying and eventually live off dividends

Yo would need a decent portfolio of shares to do this.

 

Here is another chart from Commsec. Showing the comparisons from 1981.

Yellow line is Milton Corp (MLT)

One thing I found which is bit strange is All Ordinaries vs ASX200 index performance difference. I would have expected them to be neck and neck. The only thing I can think of is may be the All Ordinaries is showing total returns (with dividends re-invested).



Cheers,
Oracle.

 

We know markets work in cycles, currently we are seeing a bull share market what when it goes from bull to bear and it will happen we just dont know when

Just being devils advocate

How will you manage risk?

If your portfolio is wiped out perpahs 20%+ how does this impact? Assuming most have Debt against shares?

.....or Do you go......you beauty I am now going to buy a bucket load of shares?

or do you go......i will never buy shares again I have lost a fortune

For those with income to cover the debt probably wont matter at all

 

Just noticed the ASX200 chart starts after 1991. So here is another chart starting end of 1992. Comparison now looks much more closer as you would expect.



Cheers,
Oracle.

 

New highs?

The power of dividends reinvested. ASX 200 with NO dividends reinvested (green line) is a long way from new highs relative to 2008. With dividends reinvested the pre-GFC high in 2008 was exceeded ages ago. The new highs just keep on coming and always will albeit not in straight line:

 

Trouble is "price" only charts tell less than half the story. Franking differences between LICs and the index not shown in accumulation charts will improve LIC performance further.