LIC's vs ETF's Historical Performance

Discussion in 'Share Investing Strategies, Theories & Education' started by Realist35, 8th May, 2017.

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

    Nodrog Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    11,379
    Location:
    Buderim
    In regard to lump sum vs DCA I think many underestimate just how great a role psychological factors play in being successful with investing.

    It's one thing to say it doesn't matter if I invest a lump sum and the market tanks or a market crash won't worry me, I won't sell but will buy with ears pinned back etc. Easier said than done even for many market veterans let alone newer investors to shares.

    Which is why I suggest that newer investors take their time through "progressive" exposure to the market to gain confidence, increase commitment and spread their risk over TIME. The last thing I want to see is an enthusiastic newcomer to shares go in with all guns blazing and if unlucky have the market go against them in a major way. We know it's likely to be temporary (sometimes a very long period eg post GFC) but the psychological impact may see a less experienced investor sell at the worst possible time vowing never to invest in shares again. I've seen it all too many times. That would be a shame given what a wonderful income source shares are.

    But of course that's just my personal view. Each will need to make their own decision.
     
    Last edited: 10th May, 2017
    Parkzilla, Sannie, Julian and 8 others like this.
  2. truong

    truong Well-Known Member

    Joined:
    10th Jan, 2016
    Posts:
    276
    Location:
    Everywhere
    With that sort of money one could almost live off the franking credits alone! :eek::D 2.5M x 4% x 3 / 7 = 43K
     
  3. Nodrog

    Nodrog Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    11,379
    Location:
    Buderim
    Yes my friend in regard to franking credits which you and I know all too well especially when receiving a tax free pension in Super;).
     
    truong likes this.
  4. Realist35

    Realist35 Well-Known Member

    Joined:
    1st Mar, 2016
    Posts:
    1,652
    Location:
    WA
    This is probably the closest to what I've been looking for. The attached table shows cumulative growth of 21 LICs Vs the index (ASX 200). Below is the link as well.

    The importance of dividends when measuring performance. A close look at LICs

    Summary from the article:
    • The cumulative performance of the Benchmark fund, STW was 59.29%, representing a return of 5.93% pa over the 10 year period.
    • The best performing fund over the period was Mirrabooka Investments (MIR), returning 142.72% over the period or 14.27% pa.
    • All but one of the LICs outperformed the benchmark STW fund over the period, with the only fund that underperformed being Australian United Investment (AUI), which to be fair performance was almost identical to STW.
     

    Attached Files:

    gateway likes this.
  5. Nodrog

    Nodrog Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    11,379
    Location:
    Buderim
    Was discussed ages ago here. Problem is the data is Share price + dividends (TSR) not Portfolio value + dividends (TPR). TPR is preferred as it's not distorted by NTA premium / discount. If a LIC was trading at a sizable discount at the start of the ten year period then traded at a sizable premium toward the end of the period performance will be way overstated.

    Have a careful read of this report which should give you the performance comparison your after and a heap of other information. There's a lot of info in there so you might need to read it multiple times but You will be well educated as a result:
    https://cuffelinks.com.au/wp-content/uploads/LIC-201703.pdf
     
    mcarthur, Realist35 and RetireRich101 like this.
  6. Realist35

    Realist35 Well-Known Member

    Joined:
    1st Mar, 2016
    Posts:
    1,652
    Location:
    WA
    Oh, that's easy, only 69 pages :eek:

    Thanks a lot, will definitely go through it carefully. It's been such a steep learning curve. Knew nothing about shares until a couple of days ago:).
     
    MTR likes this.
  7. Nodrog

    Nodrog Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    11,379
    Location:
    Buderim
    Sorry I meant the stuff up front including charts /.tables. For the large remaining section on individual shares just look at those of interest eg AFI, ARG, MLT etc.

    It won't take that long and you seem much keener than most.
     
    Realist35 likes this.
  8. Hodor

    Hodor Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,238
    Location:
    Homeless
    @Realist35 here is MLT, AUI, AFI, WHF vs the ASX200 on a 25 year time frame.

    It doesn't include dividends and there are the usual problems with starting point and NTA premium and discounts.

    Also keep in mind it is the actual results of the LICs and ASX200 - ETFs will lag the index due to costs and fees, over 25 years those 0.1%-0.15%pa MERs are an ~8% headwind.
     

    Attached Files:

    Realist35, Zenith Chaos and oracle like this.
  9. Zenith Chaos

    Zenith Chaos Well-Known Member

    Joined:
    10th Jul, 2015
    Posts:
    1,673
    Location:
    Sydney
    1. Try this link: Vanguard Australian Shares Index ETF, VAS:ASX:AUD charts - FT.com
    2. Click Charts > Comparison and add LICs of your choice.
    3. Choose different time frames starting from Max > 10 > 5 > etc
    What do you notice? How did VAS perform against LICs during the past year?

    Remember:
    • These graphs are comparisons of share price without dividend reinvestment.
    • Fully franked dividends gross up higher than dividends without franking or partial franking.
    • The market is unpredictable.
    Conclusions:
    • LICs can replace ETFs for ASX200 as historically over most time periods their accumulated performance is superior. Bonus question - why has their performance been superior for ASX200? If you can answer this, you have moved to Padawan learner.
    • However, when all LICs are all at a premium to NTA some people like to buy ETFs at these times.
     
  10. The Falcon

    The Falcon Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    3,423
    Location:
    AU
    Had a look at MLT, they use XAOAI rather than XJOAI for a benchmark. Over the last 15 years (end April 2017) MLT is showing 8.67% TSR vs. either index (8.48%/8.50% less 0.15bps) at say 8.33-8.35%. MLT has franking advantage, but this then gets more technical if you dig down to look at the amount of growth return vs yield return. I'd wager more yield from MLT, so might be close.
     
    Last edited: 12th May, 2017
    Realist35 likes this.
  11. Snowball

    Snowball Well-Known Member

    Joined:
    28th Dec, 2016
    Posts:
    843
    Location:
    Perth
    Damn good thread this one. So many sensible investors here! :)
     
  12. Redwing

    Redwing Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    7,437
    Location:
    WA
    LIC's MER's can be up there also

    WHF which I read here seems to be most closely linked to PT's strategy (Industrial's only) is the more exxy

    MLT 0.14%
    AUI 0.13%
    AFI 0.18%
    WHF 0.35%

    I would also look at exposure to international indices via ETF's as part of the portfolio

    @austing has mentioned UK LIC's, are there any US LIC's worth interest also?
     
    Realist35 likes this.
  13. Realist35

    Realist35 Well-Known Member

    Joined:
    1st Mar, 2016
    Posts:
    1,652
    Location:
    WA
    Just looking at this chart again. In my understanding WHF is closer to all industrials index than any other LIC, and hence it should quite closely track the index and out perform ASX 200. However this chart, as well as the one posted by @Hodor doesn't seem to show that?

    EDIT: Oops. It is share price only and WHF shares on average trade at 8% discount to NTA, so this might be the reason for under-performance even when compared to ASX 200 :).
     
  14. Nodrog

    Nodrog Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    11,379
    Location:
    Buderim
    A tiny bit dated (2016):
    IMG_0060.PNG
    IMG_0126.PNG
     
  15. Realist35

    Realist35 Well-Known Member

    Joined:
    1st Mar, 2016
    Posts:
    1,652
    Location:
    WA
    Just had a look at the latest Australian SPIVA report comparing the performance of actively managed Australian funds vs their respective benchmarks:
    http://www.whitefield.com.au/annual-report?download=52:whf-annual-report-2016

    I found the results on page 5 pretty interesting. It turns out that the average 5 yr performance of actively managed large-cap funds was almost identical to their benchmark (7.28% vs 7.40%), and that is when funds are equally weighted.

    However what's more realistic is the performance of asset weighted large-cap funds Vs the benchmark, and they have on average out performed the benchmark (7.77% vs 7.40).

    These fund returns are net of fees. Now consider low cost LICs and 100% franking (compared to 75% for the index) and there is more out performance:).
     
  16. Realist35

    Realist35 Well-Known Member

    Joined:
    1st Mar, 2016
    Posts:
    1,652
    Location:
    WA
    @austing I was looking at this chart and it is such an eye opener for me.

    I know you prefer to use portfolio (NTA) performance rather that the share price return. However, wouldn't share price return (Share Price and Dividends Accumulation in the above graph) be more realistic outcome for an average investor? What I am trying to say, an average investor would DCA over time using company`s dividend reinvestment plan (well I will be doing that), which means the investor would regularly be using dividends to purchase more shares on ASX, which for WHF are trading at around 8% most of the time. Being able to constantly buy shares at discount, this dramatically boosts the investor`s returns, which is exactly what the top line in the chart (WHF Share Price and Dividends Accumulation) is showing.

    Hence the TSR in the graph beats not only the industrial index but also the total portfolio performance. I think I will be buying only WHF from now on :).

    And of course, being a beginner all this can be rubbisho_O
     
  17. pippen

    pippen Well-Known Member

    Joined:
    10th Aug, 2016
    Posts:
    1,428
    Location:
    australia
    I have to hand it to you @Realist35 you are keen as mustard! Just don't burn out and enjoy the process!
     
    RetireRich101 and Realist35 like this.
  18. Nodrog

    Nodrog Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    11,379
    Location:
    Buderim
    You're starting to make me sound like the beginner. Gotta admire your enthusiasm.

    First up fund Mgrs will always pick the best figure. The chart likely excludes fees for a start.

    I don't like share price charts because they can be be misrepresentative due to fluctuations in NTA. TPR as opposed to TSR removes this inconsistency.

    But yes some suggest that share price is what you pay and what you get if you sell.

    In theory the NTA discount could equate to getting the dividend stream also at a discount which reinvested could boost performance. WHF has experienced great NTA growth post GFC but is yet to increase its dividend. So no reinvestment advantage in recent times. This has been discussed to death here in the past. It can get quite complex.

    I take the view that each LIC has it's time in the sun. Hence I invest across a number of them. I certainly wouldn't be suggesting that one only invest in WHF. Even Peter Thornhill who is an Industrial Share fanatic invests in a number of LICs other than WHF.
     
    Banawarra and Realist35 like this.
  19. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    12,394
    Location:
    Sydney
    For the record, my stance has always been that share price (the price you can actually buy and sell at) is the only fair way to compare two listed products. You can't buy an NTA.

    NTA is useful for determining when to buy based on discount - but it's not useful for comparing actual performance because an increase in NTA doesn't directly translate to something you can sell for a profit.

    I've wanted to build ETF and LIC functionality into my Compare Funds website ever since it was built - but have yet to find a cost effective source of data which includes dividends and other relevant information (splits, rights issues, etc) which would allow us to accurately model the value of the investment over time.

    It's very much a chicken-and-egg problem - last time I checked (probably 10 years ago), the ASX was the only source of the information I needed and starting price was around $10K ... I would need to know how many people would be willing to pay for such information before I committed to that kind of outlay - but until I have the data and can demonstrate what I can do with it - it's difficult to convince people to pay!

    When I get a chance I'll make some new enquiries and see what the price is these days.
     
    Nodrog, Archaon and Redwing like this.
  20. Nodrog

    Nodrog Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    11,379
    Location:
    Buderim
    "SELL FOR A PROFIT" and therein likely lies the difference between you and me.

    Fair enough argument which the likes of ETFwatch and I'm sure many others agree with. But first you need to decide if you're a speculator who sells for a profit or long term investor buying for cash flow.

    Being in the second category (long term investor for cash flow) my interest is in the underlying portfolio and its dividends. Hence it's NTA accumulation performance that interests me not the LIC's share price.

    The LIC's share price can be all over the place at a point in time given variations in NTA. If taking the share price route you need to be aware of the LIC's long term "average" NTA.

    I'm sure many will agree with @Simon Hampel's view but I'm not one of them given my investing objective. Not suggesting I'm right technically but it's what makes sense in our circumstances.
     
    Last edited: 29th May, 2017
    b0b555 likes this.