LIC & LIT Listed Investment Companies (LICs) in 2017

Article by Chris Cuffe on why most LIC performance reporting is inadequate.

https://cuffelinks.com.au/lic-performance-reporting-inadequate/

 

Why post-tax NTA? Low turnover fund unlikely to be going out of business anytime soon.

Agree that I generally wouldn’t pay a premium more than a few percent for a LIC. On a pretax NTA basis it’s getting closer. For some it’s probably close enough.

In regard to active management the ASX is a rare case where a much higher percentage of active Mgrs have been able to add value in the mid / Small Cap sectors over the long term. A lot of crap speculative mining rubbish in this area of ASX. See SPIVA long term research data.

Some of us like the close end structure of LICs especially in the smaller end of the market so the Mgr isn’t forced to sell less liquid stocks due to the whims of nervous unit holders at times.

MIR’s MER is relatively cheap. No key person risk. Likely to be around long term.

Reduces concentration risk away from our lop sided market.

Many here are averaging in over the long term so aren’t as concerned about a modest NTA premium at times. Other times throughout Accumulation it will likely be at a discount. It averages out overtime.

Some are more interested in the relatively reliable dividend.

Future performance, who knows? Who really knows anything?

Competition - Smart Beta? Hot shot stock picker who can disappear at anytime? Big fee Mgrs? Cap weighted small cap index ETF full of crap? Unlisted Trusts subject to the whims of unit holders?

Some of us like to align ourselves with funds that match our investing objective. Here’s MIR’s which suits me just fine:

So I’m happy to pay a bit of a premium over Pre-Tax NTA occasionally given what I see as MIR’s positive attributes. That said most of my historical buying has been at a deep discount. Such is the nature of LICs.

If it under-performs / out-performs some Index do I care? Nope. It’s what we choose to invest in and meets our needs. We report to no one but ourselves.

 

I read that recently. Some good points but also some rubbish especially in relation to Portfolio Performance. Typical ex fundie trader mentality.

If Cuffe dislikes LICs so much how come he was happy to join ARG’s board awhile back? Here’s his chance to make a difference!

 

@dunno just looked back at my posts. My mood appears short but it wasn’t meant to be. Just spitting out what popped into my head. None of it is meant to suggest it’s right for others, just us. Overall our portfolio income keeps coming in and growing. That’s all that matters to us.

I blame Frank, he’s given me a sore head.

 

Only because that is what I have easy access to for historical data. Comparing premium/discount longitudinally across the company’s history it shouldn't matter if pre or post is used, just the magnitude of the premium/discount changes if you use Pre.


As with all why questions - we only need to answer them to our own satisfaction - but we do need to answer the question thoughtfully before the market puts us to the sword if we are to be a strong hand in the dark times. I have no problems if I arrive at an answer different to others.

 

A few months behind but here MIR’s Pre-Tax NTA chart. NTA premium has reduced further since September:


Yes and fair enough each of us looks at these things differently. Stage of life, circumstances, period of accumulation, objectives, we’re all different. MIR has rewarded us well over a long period. Will it do the same for others? No one knows!

 

In the meantime, for some old news ... SOL has entered ASX300 & ASX200.

 

The way I see it the philosophy of this thread is:
1. No-one can time the market
2. A diversified portfolio of quality Australian LICs has outperformed the ASX index
3. Never sell
4. Although the market may seem expensive, because of 1, continue to buy when possible to chip away at your final target number of shares that achieves your income requirements
5. nta, share price and dividend yield should be considered when buying but remember 1 and 4.

MIR is a quality LIC that seems to always trade at a premium and whose price has come back significantly. MIR-Mirrabooka Investments – ETF Watch

Alternative is AMH if NTA is more important.

Not advice.

 

I forgot to mention that when the market tanks, the LICs will probably maintain some sort of premium, although this article seems to contradict that: A look at the history of LIC Net Asset Values

Would it be better off buying the LICs at their absolute lowest price or when they are at a discount?

 

If you look at the chart I posted on Post-tax basis and Nodrog posted on Pre-tax basis, MIR hasn't always historically traded at a premium. It has in the last 5 years for sure but 5 years in relation to your dot point 3 is a blink of an eye.

The only thing better than a good LIC brought at a small premium is a good LIC brought at a discount.

Patience weighed against the possibility of missing out - an endlessly intriguing game of emotion and numbers.

 

It’s hard to know the how this pans out post FOFA. Typically the older style larger LICs (eg AFI / ARGj will trade at a sizable premium when the market tanks but the rest typically get slaughtered. The likes of MIR / WHF / AUI included. Low liquidity worsens the situation.

In relation to larger LICs it’s why I hold the index through VAS or in the past STW. So when the market tanks and AFI / ARG stubbornly increase in premium I’ll switch to buying the index which trades at NAV.

 

An interesting thing about using Post-Tax as the longitudinal basis for comparing premium and discount over time is that you get a clearer picture. For example, if you look at Nondog’s pre-tax chart you will see a premium during the 2009 market route – However that premium mainly appeared to occur because MIR’s balance sheet liabilities shrank as deferred tax liability on unrealised gains reduced from over 17 million to under 1 million as prior unrealised gains evaporated. Ie the pre and post NTA values converged. Whilst price showed relative consistency against post tax NTA it showed a price spike against Pre-tax NTA as unrealised gains were given back and the two NTA measures converged.

 

In what scenario do you buy AFI / ARG? Wouldn't it be better to get WHF / AUI at a discount than VAS?

 

If I was a trader looking to play NTA then perhaps this deep analysis might serve some purpose. But most here are long term accumulators content to average in over time.

Yes in rare circumstances like market crashes the unrealised gains of low turnover LICs evaporate. There’s a big difference between low turnover LICs (with LIC CG status) and high turnover Trading LICs ineligible for the 50% CGT discount. That is, taxed as normal companies. In the first instance Pre-tax NTA makes more sense. In the second case Pre and Post tax is likely to be similar due to high turnover.

But by all means choose what makes you happy. I, like LIC Research Analysts seem happy to accept Pre-tax NTA as the industry standard. I assume there’s a reason for this.

I don’t profess to be any sort of expert on any of this. I invest in LICs to let others do the work. A few simple rules tend to have worked well for us. Others prepared to spend time analysing LICs in great depth may well do better. No guarantee though. Depends on how one chooses to spend their time and what their goals are.

 

Just finished reading NAB Trade article

LIC UPDATE: BENEFITS OF INTERNATIONAL EXPOSURE

 

Of course I load up on the LICs that I like when they are trading at a great discount. I grabbed quite a bit of AUI, WHF and others during the GFC. But these can lack liquidity at times. The popular index ETFs don’t.

In more recent times I’ve become more concerned about the ever increasing level of change and disruption in the world. LICs which operate with LIC CG status have to keep their turnover very low. They have no choice. Don’t get me wrong I’m a great believer in low turnover LICs generally but for SANF I like the idea of also having exposure to the index. The best of both worlds you could say.

Index ETFs such as VAS / STW have no such turnover restrictions. Any disruption / change which might happen more rapidly than expected is automatically reflected in the index. In a sense the index is self cleansing.

Even though I rarely sell I do like liquidity. One day you may need it.

I like to keep my allocations between each LIC and index ETFs in some sort of balance. There’s a limit to how much I feel comfortable having in smaller and / or less liquid LICs such as WHF / AUI. I have less concerns with the larger LICs ARG / AFI / MLT and VAS ETF. Hence the simple rule of buying these LICs when at a discount and VAS when not.

Probably an overreaction on my part but hey one has to do what lets one sleep well at night. It would be good if psychology could be removed from the process but such is life.

Bit tired tonight and unsure if the preceding makes sense. Sorry if it doesn’t.

 

I’m not a trader and I don’t think choosing to look at Post NTA for a longitudinal comparison is very deep.

I’m not sure why the sell side LIC Analysts are always happy to use Pre-Tax NTA – I have my suspicions. But if your happy that they are happy then you're all happy - you can sing Kumbaya together. I simply choose what I think is an appropriate measure to suit the questions I’m asking – its not deep just logical I would have thought.

I seem to be able to upset you whenever I post, even when posting responses to others. If I was really trying to upset you I might make some smart arse observation along the lines of your SANF depending on confirmation bias in this forum.

I’m a habitual questioner of my investments to fight my own confirmation bias’, but I shall return to doing that privately and desist from doing so on your threads.

Lastly, I hope these charts will clarify a little more for ErYan the point I was trying to make on the usefulness of Post tax prem/disc as a longitudinal measure.



Post Tax(below) gives a different magnitude of premium/discount then Pre Tax(above)
however the movement in prem/disc correlates better with price and hence should be more useful in fine tuning purchases if you have held back dry powder for such times.



The behaviour of the Pre/Post discount's / Premiums tends to make me believe the "weight" of money is more interested in Post-Tax than Pre-Tax asset values despite the sell side analysts always using Pre-tax. It seems to stand to reason - because if you have real money you can duplicate the LIC holding diversity and have your tax base at "your" purchase cost - you don't need to buy somebody else's tax liability based on the assumption that the LIC won’t realise it and that you can in turn on sell that liability to someone else when you want to get out.

 

Just reading these threads on LIC's and contemplating what stages many investors are at

@Nodrog and @SatayKing have multi-million dollar portfolio's and are retired

@Frank Manno has posted he has $1.5m in cash and will retire in 8-10 years

Someone aged 30 or so, with only $100k in an LIC or two will take a while at 3 to 4% dividends, regular buying or DCA and compounding to get them to a baseline million dollar level. Someone at 40 or 50 will have other considerations

I'm assuming many posters have a goal of a $1M portfolio which will give $35,000 to $40,000 p/a income?

I thought that $52,000 p/a sounds good ($1,000 per week) as an end income goal (house and car paid off, kids grown up)

Though may need to lift this as the Centrelink Maximum basic rate is $814.00 for singles and $1,227.20 for couples. Or think about a combination of both

Or is everyone aiming higher and whats your plans to get there via LIC's

 

@dunno my apologies if I’ve come across as being upset then upset you in the process. Honestly I’m not. Just a bit tired lately and probably coming across more blunt than intended.

You have investing knowledge and skill way beyond what I will ever have. So please keep posting. I do have a lot of bad habits and need to shut up and listen more. It’s hard to change at my age.

I suppose being a long term buy and hold investor (unlikely to sell so the sell side less important) the pre-tax NTA for the low turnover LICs seemed more relevant. In the case of Trading LICs post-tax NTA seemed more applicable.

I suppose also that buying opportunities would be few and far between if one used post-tax NTA as a buying trigger for the more popular LICs.

And for us it’s really just about the dividend income stream and simplicity. We’re no doubt giving up some performance as a result.

As for LIC bargain hunting I tend to use the long term Chart more so than NTA. As they say a picture paints a thousand words.

But I may well be wrong on the whole NTA thing and as you say fallen victim to confirmation and numerous other biases.

So please do keep posting as I enjoy your input. And please be patient with my poor behaviour. I will genuinely make an effort to improve.

 

Everyone will be looking for a different level of income as their personal target, based on their own desires/living expenses. There's no one answer.

That income return seems a little low - is that after tax? Or is that including overseas shares too?

If someone is keen on achieving a higher level of income and doesn't mind investing in Oz only, then dividend income in the range of 5-6% including franking, is certainly achievable. Tax will then be different for everyone too, but this is the gross income achievable.

Including overseas index fund will give a lower overall income yield, but arguably a 'safer' portfolio as it'll be more diversified among industries and countries. Everyone has a slightly different take on what they're happy with here.

It's all very specific to the individual. We live comfortably on 40-45k including rent, so really we need just 700-800k of Aussie LICs and cash buffer.

Does it take a while to get there? Sure. But it's entirely dependant on how much you can save. The more rapidly you can save, the sooner you'll get there.

I've noticed some people want to buy an asset and then wait...and wait...and wait, for the asset to do the hard work to make them financially independent. When instead, they could pull their finger out and do some serious saving and get there in a fairly short space of time! I guess everyone's different