LIC & LIT Listed Investment Companies (LICs) in 2017

Yes it has gone XD with a ff dividend of 8.75c.... SP however dropped as much as 15c so I snagged a few a short time ago.

 

The trade volume is about 31000 atm which is quite good for WHF.

I expected the price to drop by about div + franking amount to about $4.7 - $4.75 range where the trades are atm. Seems to be fine to me.

 

I squirrelled some too at $4.70

 

If that’s the case then it appears NTA discount opportunities will be more important in providing portfolio outperformance in the future?

To be honest it would be great if more and more bad press came out about LICs. It might make them less popular so I can start enjoying discount opportunities like in the good old days prior to FOFA and greater publicity etc.

Thinking about this I do believe that the old school LICs are becoming a pile of crap. Everyone should sell them to buy the index.

Mawahawhawhahahaha

 

As they get bigger and the hold part of the portfolio is larger it is hard to be anything but index like. New acquisitions are a much smaller part of the whole.

Not sure how this can be avoided, been thinking on it recently. Still I am often surprised how much the old LICs vary from the index at times so maybe if we give it another 20 years I'll think differently.

 

And note that the older LICs have a very strong dividend focus. I think many of their investor base aren’t all that concerned whether these LICs are tracking the index or not. The main priority is a reliable and growing dividend stream. The company structure allows the LICs to smooth dividends as well.

God knows I must have spent thousands of hours over the years researching and reading about investing, index funds vs LICs etc. As weird as it sounds I just feel comfortable having most of our money invested in LICs. The structure, very low fee in some cases, overall quality of holdings, dividend focus and smoothing, discount opportunities etc just match my investing personality perfectly.

The only index ETFs we hold are VAS and VGS. And VAS is a relatively small holding.

One just has to go with what suits them best.

 

Absolutely! With AFI and ARG effectively mirroring the index these days, the only way you're likely to outperform the market to any significant degree is if you buy them when they're at a discount. Conversely, you'll almost certainly underperform the market if you buy at a premium. Not a big deal if its only a small premium but every so often they do go a bit silly, for example in 2015/16 when ARG's premium climbed over 10% a couple of times.

 

Oh no!

Now were gonna have folks nail biting over 1-2 cents discount or premium.

Lol. I thought we just got past that!

 

We’re doomed, NTA discount or bust. It’s all so frightening I don’t think I’ll be able to sleep tonite.

 

Yep the XD bargain seems a bit like a farce. Seems better to buy a month or two before XD (before the bots drive it up) rather than waiting for XD to buy (after the bots sell).

 

There’s a lot of variables at play including strength of the overall market and liquidity etc. See what happens over the next few weeks. There’s no guarantees with any of this stuff. WHF generally trades at a discount anyhow so if one is keen on it then why not just buy it when the cash is there?

I’m a bit fussier being retired with more than enough income. We don’t have to buy any shares anymore if we don’t want to. Hence I mostly buy when opportunities arise and risk is lower. Accumulators generally don’t have this luxury. They could be waiting and waiting for opportunities then end up being left behind on the sidelines. There’s a lot to be said about the benefits of plain old simple dollar cost averaging.

The combination of LICs and index ETFs can work well. When investors are ready to buy whether periodic and / or opportunistic then if their chosen LICs are good value relative to the market buy these otherwise buy the index ETF.

An earlier post by another member raised the fact that the older LICs don’t appear to be outperforming the index like in the past. It was then suggested that buying these LICs at a discount to NTA improved the odds of these LICs portfolio outperformance. And of course the dividend yield is lkely to be higher due to buying the LIC’s underlying assets at a discount.

That’s what I tend to favour nowadays. I found it frustrating at times when the market tanked but my favoured LICs didn’t do so to the same degree resulting in a sizable premium. Hence rather than miss out on the opportunity because the premium is unacceptable I just buy the index ETFs instead. Seems to work quite well for us.

Think about it. In today’s world the majority of active Mgrs are unable to beat the index due to competition and fees. This is where the LIC structure and NTA variations offer a unique advantage. The old school LICs have a very low fee similar to or even less than the low cost index ETFs so that drag on performance is minimal. The occasional opportunity to buy them at a discount to NTA increases the chance of LIC investors outperforming the index as opposed to investing in active mgrs using other structures.

So it doesn’t have to be LICs only or index funds only. Why not enjoy the best of both worlds!

Not advice.

 

Interview with Anton Tagliaferro of IML / QVE:

The timeless tools of investing

 

Nailed it! Once the premium for AFI and ARG start creeping over 2% premium then I start looking elsewhere for value. Similar with other LICs comparing current premium/discount with historical ones, though other factors come into play with other LICs, AFI and ARG are a lot more straightforward. I appreciate that others prefer to just dollar cost average regardless of premium/discount, depending on your time and interest in monitoring NTAs and the many other available LICs and other products on offer. Whatever works best for your individual circumstance.

I'm interested though, once you've bought the LICs or ETFs, do you then hold them regardless of what the premium/discount does beyond that point? Or, extending the LIC/ETF strategy, do you sell some/all of the LIC once the premium goes over a certain level and use the funds to buy ETFs or other better value LICs? Or conversely, if LICs are at a big discount do you sell out of the ETFs you have and load up on the discounted LICs?

 

A common strategy used by more active investors but best done in a low tax environment given CGT.

I don’t do this however. I aim to keep things simple and have one main objective. That is, to continue to grow our passive income stream.

Take for example MIR. I’ve purchased this over the years at sizable discounts. I had no intention of selling it in recent times when it was at a large premium. Beside you might sell out then a heavily discounted SPP or Rights Issue could be offered reducing the premium significantly. This did happen quite some time back with a SPP offering. If you kept some shares participation in the SPP is still an option. But Rights Issues are relative to your holding so it’s of little value if your holding is small.

Essentially if I’ve been fortunate enough to buy a LIC at a bargain price and with it a discounted income stream I’m keeping it for good.

 

That's why I try not to focus too much on NTA (I still do), because it lends itself towards trading, overanalysis and tax events. And I don't think that's our goal here.

Given we want to accumulate and harness the growing dividend stream, we should aim to keep it simple where possible and focus on the cashflow.

And if anyone's interested...I just wrote a biased and very basic review of AFIC on my blog

LIC Review: Australian Foundation Investment Company (AFIC) - Strong Money Australia

 

Great write-up @Snowball ! Thanks for the reminder about your site, hope it's going well and rewarding for you

 

The whole NTA thing doesn’t have to be onerous requiring lots of time and over analysis etc. Investors new to LICs get themselves tied up in knots over NTA. But after awhile you get to know the LICs you’re investing in. Sometimes I check NTA other times I don’t when topping up our holdings. You get a feel for it over time.

Take for example the market corrects 20%. Index ETFs such as VAS / STW mirror the market. AFI had been trading at fair value but only drops 10% with it moving from in line with NTA to a 10% premium. The ETFs would appear to offer better value than AFI.

Despite what I’ve said here and earlier the reality is most of the time there’s often one or more old school LICs offering good value relative to the market. For example less popular LICs with poor liquidity such as AUI and WHF might be at a discount when the large popular LICs AFI / ARG / MLT are at a premium. So it’s not that often that I end up buying VAS in preference to our LICs.

It should be noted however that I only hold the index ETFs in the tax effective SMSF environment. Outside of the SMSF I favour 100% franking so it’s all LICs in Trust / personal names. Each investor will need to tailor these strategies to suit their circumstances.

Not advice.

 

I’m a bit wary of that blog. There’s some unsavoury characters who post there. Last time I looked there was some joker there going on about flashing.

 

Watching the cricket and noticed that Magellan are sponsors. Is that a buy or sell indicator?

On indexing vs the big LICs - an interesting discussion to be had. The huge weighting in banks et al of the ASX is risky, but so is having FUM that is too much to allow agility. ARG, AFI and MLT to a lesser degree are becoming index proxies. The other bigguns like AUI, WHF, BKI have probably lost agility but have a tasty franked dividend.

In conclusion the balance of large cap ASX and then how that is constituted is not a simple question. Get it below NTA if you can but patience is required and lost opportunity costs as the market increases. I'm moving away from the index but choosing the best LIC can be quite a complicated question.

 

I don't think focussing on NTA necessarily lends itself to trading, depends how you use it I guess. When making a buy decision it just gives you a quick and pretty accurate measure of value, particularly for the old stoic LICs that closely follow the index like AFI and ARG. To me, buying AFI or ARG at a 5% premium is kind of like buying an ETF like VAS but with a 5% fee put on top for no apparent reason. Likewise, buying AFI or ARG at a 5% discount is like buying VAS and having them knock 5% off the quoted price for no apparent reason.

As for then selling out once you've bought in and perpetually switching, that does look more like trading, though sometimes the size of the premiums/discounts just make it worthwhile. I'm not a big fan of switching regularly and don't do it very often, unless the premiums start looking unsustainable, like ARG at 10% less than two years ago, or WAX at 33% very recently (now dropped back to around mid-20's).

As others have noted, if you do decide to sell then its still a good idea to keep at least a small amount in case there's a good SPP later on, allowing you to buy in at a more attractive price. Though often an SPP offer with a discounted price will lead to a drop in the share price anyway, sometimes very close to the SPP price, as some holders take advantage of the margin and sell out to buy the same shares back at the discounted price (potential CGT implications in doing this though).