LIC & LIT Listed Investment Companies (LICs) 2019

Interesting read, finger pointed at labor

Switzer Report

APRIL 15, 2019

Investors in Australia’s biggest Listed Investment Companies (LICs) have witnessed a fairly ordinary last 12 months.

While on paper the portfolio returns of around 9% look reasonable, this masks the fact that they have under-performed the benchmark S&P/ASX 200 accumulation index by between 2.4% to 3.4% over this period. And if share price performance is considered (growth in share price plus dividends), they have fared even worse as any premium to NTA (net tangible asset value) has been crunched and they have moved to trading at a discount to NTA. The second largest, Argo (ARG), has returned just 1.5% on this measure over the 12 months to 31 March.

The move to a discount to NTA is not just related to performance. It’s also a reaction to Bill Shorten’s proposed change to franking credits. I have warned on several occasions that LICs trading at a premium are the most vulnerable group of stocks to any change (more vulnerable than bank stocks or hybrids) because the LIC market is purely a retail market and the premiums defy gravity. Institutional and offshore investors don’t buy LICs. All it takes is a few retail investors to move to the sell side and the premium can crunch very quickly.

 

Yes, have noticed this in my portfolio of late, VAS surging away from the LICs. To stick with my portfolio allocation I should be buying more LICs now but human nature being what it is I can't help but pause and try and understand the drivers are for this.

I think it is mainly sentiment driven. I assume the bigger older LICs are a bit of a proxy for yield vs growth/risk given they hold more bluechip/higher yielding stocks. Combination of a risk-on environment with a good ASX share price run up, less yield focus as well as the franking credit risk? Poor old LICs looking a bit less attractive. Is there anything else I am missing?

 

Agree with your sentiment
The Franking credit may be perceived to be a real issue - my feelings are that fundamentally nothing wrong with LIC but simply that with sentiment as it is they may be available for even less if BS introduces his franking BS

Makes me appreciate the simplicity of index investing even more because you dont need to try to "understand" sentiment etc.

 

Using socionomics to explain why Labor will win the election

From @kitdoctor

 

No. Long term I think it’s going to be very hard for the large LICs to beat the index with their imbedded capital gains and the inertia that creates. Personally I think there are a few that are quite fine vehicles but that can change on the whim of management. Witness BKIs recent disrespect to shareholders under Contact Asset Management ; expect significant dilutory cap raisings from here on in, every 1-2 years....all they care about is FUM. Witness the related party skullduggery with URB (same management) with regards to the unlisted property double dipping.

Why would you expose yourself to this type of long term white anting of your capital if you don’t need to? BKI is an example of what can easily happen. It is being punished by the market and deservedly so.

 

I know this has been discussed in the past but just wanted to see if views regarding this has changed in any way.

Would it be of any concern to you if 70-75% of your investments were in Vanguard Australia ETF's from a safety point of view?

My views are I am not concerned and the plan is eventually around 70%-80% of total portfolio assets will be in Vanguard ETF predominately VAS in the name of simplicity for myself and wife when I am not around .

Cheers,
Oracle.

 

Good question, if concerned add STW which is a good vehicle and split up your Oz exposure, or even A200 once it gets some size. The fund structure provides a high degree of safety - manager is not custodian - however if it helps SANF do it.

 

Personally I predominantly use VAS and VGS. My brother is in the process of setting up a simple 2 ETF portfolio and chose to go with STW along with VGS as he didn't want 100% invested in Vanguard. (thanks to The Falcon for the advice)

I think Vanguard is too big to fail personally but can understand why people mix it up.

 

Always at the back of my mind is the simplicity aspect especially for my wife if I’m not here.

As @The Falcon mentioned one could simply spread wealth across similar product eg STW for Mgr diversification. One extra holding but only a single annual statement per ETF needed for accounting / tax purposes. Only damn nuisance now is AMIT in that all statements need to be kept to keep track of cost basis adjustments when any holdings are eventually sold.

I have used a few LICs for Mgr diversification. However Unlike ETFs, LICs have SPPs / Rights Issues etc which whilst perhaps of interest to the engaged investor of the household are likely to be an unwanted nuisance / stress / source of confusion to the disinterested partner.

Personally the one thing I’m hating more and more over time is the SMSF. If one’s Super was with say an Industry Fund and the rest outside of Super was in say VAS / VGS then the SANF would likely be good Mgr diversification wise. Whereas now our SMSF and personal holdings are almost the same.

Regardless of other’s views one needs to go with whatever allows them and their partner to sleep well at night. For us, given the amount involved, SANF requires spreading wealth across more than just VAS for ASX exposure. If only using ETFs I would be at peace with a combination of VAS and STW. Combining that with VGS (being a retiree have no interest in EM) would provide all the peace of mind needed for me.

 

@Nodrog
Similar issues with the SMSF, for simplicity I could move to Australian Super or another low cost provider giving an ability to invest per my preferences. To move out of a SMSF now though means selling and CGT implications

 

The SMSF pension account in my case would have no CGT but I also have a sizable accumulation balance which would incur CGT.

If we went to an Industry Fund there would be two pension and two accumulation accounts each with its associated fees. Simplicity would be great though. Of course it remains to be seen what happens to franking credits.

I think that should something happen to me I would leave instructions recommending my wife close the SMSF and move to an Industry Fund. With only one member it may no longer be cost effective and a hassle she could do without.

 

From VAS PDS



Cheers,
Oracle.

 

Chill. Right click, Save As is your friend. Just let 'em know where the data is to hand over to the number cruncher and get on with it.

Chill. Right click, Save as is your friend. SMSF is now how much work? Hope it isn't an eight hour day.

Chill. No need to create a worry when there isn't one. The probability of either VAS or STW going belly up and not performing as per the index is? So why replicate indexers? Creation of another worry.

Current worry is to decide which candidate not to put first on the ballot paper just to deny the *******s $3 or thereabouts. That and do I select All or specific items for the Organ Donor registration.

 

Is this what you mean? Doesn’t Look appealing at all.



Be kind to me, I’m still suffering post traumatic stress from being denied a T’bone whilst experiencing severe hunger in recovery after surgery. Plus it’s been two weeks since I’ve had a sausage sandwich at Bunnings. Life has turned to crap.

 

Yes, once in line waiting to vote my wife keeps our position whilst I head over to the sausage sandwich stall.

 

That's one way of preserving them I suppose.

Now that is a bummer. You'll get over it, i.e. recover. We need strong encouragement to change the ratio of hospital costs from the present 70% staffing, 15% consumables and 15% power and ancillaries to 70% for T'bone and who care what they spend for the rest.

 

I believe @Nodrog has years of implementing that strategy .

 

First up I doubt anyone will want the item removed from me.

Secondly to add to the feeling of total despair I’ve consumed very little alcohol in the last two weeks.

One can only hope that better times lie ahead.