LIC & LIT Listed Investment Companies (LICs) 2019

@Zenith Chaos you lured me back here with a tag. Bah humbug.

Not sure I can add much other than rambling crankiness with gross omissions of content needed for a decent understanding. I can post a paragraph which less information than most provide in a sentence.

Any-who, couldn't see anything new in the skeptical view of LICs piece. The agenda is in the title so what would you expect?

Maybe I'll try to add something semi-constructive anyway.

Claim #8 should be #1 (or not tucked away at the end at least!) and have more time spent on it and the linked article doesn't address risks associated with franking policy changes.

The conclusion;
"WINNER: Franking does not matter when comparing LICs to ETFs."

Is therefore incorrect IMO, lower franking (more cash upfront) is marginally preferable.

 

I haven't read the article so I'm posting greater BS than usual i.e. 100% instead of 98%.

The focus on any change in franking and it's impact LIC's or whatever seems to be a little askew to my muddy way of thinking.

It isn't the LICs or ETFs which only hold various companies but the impact on the companies which are held. Alterations in respect of say banks will affect them and will flow through to LICs/ETFs. It's likely wider than only conduit organisations.

 

A reminder that LICs we’re doing just fine prior to the introduction of franking and subsequent introduction of franking credit refunds. Of course there is increased choice / competition from low fee ETFs nowadays.

There’s a possibility that should franking credit refunds get abolished LICs due to their perceived structural disadvantage might take a price hit. Those with minimal accumulated capital gains could easily convert to a LIT if desired but dividend smoothing would be lost. The older LICs with be in a spot of bother if wanting to convert to a LIT as a lot of realised capital gains will need to distributed unless as part of the transition Labor offer CGT relief.

Not all investors are impacted by the loss of franking credit refunds, particularity those in the higher tax brackets or those with enough non-franked income to soak up any excess franking credits eg cash / term deposits, listed property, international equities, capital gains. Many SMSFs in pension mode however will likely be impacted significantly if left unchanged.

Personally given the increased LIC bashing of late, hugely increased popularity of low cost index ETFs and if Labor abolish franking credit refunds I’m hoping the LICs I hold get absolutely hammered. For an income investor in particular the one fantasic advantage that LICs provide that ETFs don’t is being able to trade at a discount (sometimes large) to NTA. That’s where the real advantage of LICs lay. I will be a keen buyer in such a circumstance.

I’m not fanatical about our investing approach when it comes to ETFs vs LICs. I love low fee ETFs. I love low fee LICs. There are times when one of these will offer better opportunity than the other. Gives me the best of both worlds!

Then again, it’s all about me as a wise prawn once said.

 

I have quarantined views on the underlying assets from the LIC vs ETF debate as the effects will be equal on both IMO.

 

You’re just a young fella, you shouldn’t be cranky. That’s for grumpy old men like me.

So @Hodor are you still an investor in both LICs and ETFs, have a preference for one or the other?

Why quarantine your views, let it all hang out. We’ve missed your contributions lately. Grumpiness also welcomed.

 

Thinking of putting some (simpleton) notes together on this, which will be completely void of evidence and links to research papers

Your points would probably add to mine 10-fold if you wanted to share?

You’ll get full credit and a cheque in the mail, just ask @Nodrog

 

Beware the dark side.

 

It might be about to rain money this year, with MIR and AFIC already announcing large special dividends.

Presumably to use excess franking in case franking changes come thru.

Be interesting to see what the others will do.

 

You rotter. You've just taken away all my future excitement on seeing an increased amount going into the accounts. Nothing much left for me since they stopped issuing cheques.

Darn spoilers.











Don't look at the MIR thread where I did something similar

 

I know the obvious differences have all been pointed out but one thing I still struggle with is the potential distribution difference i.e if large amount of sellers exit VAS or STW will the unit holders still get a large distribution paid to them as the fund has to sell

 

NO. Only what relates to your units If you sell. Search recently introduced AMIT legislation which supposeadly eliminates the problem of unfair capital gains distribution as a result of other unit holders selling.

 

ok mate, i will try to get to it over the weekend. very tied up with active investments!

 

https://www.smh.com.au/business/mar...schina-deal-buoy-markets-20190121-h1aa6n.html

There seems to be quite a bit of news around about funds management and listed investment companies as past six months of equities turbulence washes out in half-year results. For example, yes, AFIC did announce a special dividend and a 62 per cent increase in revenue. But AFIC's portfolio performance was -6.4 per cent in the six months to December, including franking credits. Over the past ten years, AFIC's portfolio returned 8.6 per cent, compared to the S&P/ASX 200 returning 9 per cent.

And now the $700 million fund Watermark has decided to divest entirely from global equities to focus exclusively on Australian shares. Chief investment officer Justin Braitling said international equities had become "a strain on the resources in the business and we have not achieve the results for our investors that we had hoped".

"It was a difficult decision to close the book on our project in global equities...In hindsight, it was too ambitious of us to expect that we could be at the top of our game both in the local market and globally. Ultimately, we believe that in focusing closer to home, we can maintain the investment edge that is required to be successful in the long/short investing," Mr Braitling told the market. According to Watermark, its Global Leaders Fund has returned -3.6 per cent since inception. At least two analysts have left Watermark because of the change in tactics.

Chief operating officer Tim Bolger says the biggest cost of running a global equities fund was travelling the globe for meetings and research, and accessing high quality broker research. Watermark will now focus on its expertise of Australian stocks. It has proposed to shareholders that the two listed investment companies, Watermarket Neutral Fund and Watermark Global Leaders Fund, be rolled into its Australian Leaders Fund and delisted.


Watermark fund returnsCREDIT:WATERMARK

 

And

Regal Funds postpones $500m listed investment company

Regal Funds postpones $500m listed investment company

 

Re performance is it an apples with apples thing?

Interesting with the info about Watermark. International can be a tough gig for active managers based here I've been told during a few discussions over coffee with an FP.

 

Drat.

 

Don’t need a FP to tell you that, the best source is bi-annual SPIVA reports:



https://www.spindices.com/documents/spiva/spiva-australia-mid-year-2018.pdf

 

Indubitably. Discussions were more about people. I understand he rarely suggests active international to clients.

I have to admit I'm probably a dumbo for holding PMC but it does serve my purpose. On the broader matter I'm reconsidering my holdings in PIC as according to its latest blurb it holds no international. Always something to think about albeit of a minor nature.

 

better then average i'd say today as it was AFIC's turn for a dividend announcement:
$0.18 per share
DRP at 2.5 pct discount

Quote:

 

Same here and likely for exactly the same purpose as you. It’s not always about outperforming the index!