LIC & LIT Listed Investment Companies (LICs) Q1 2018

What? Why?

 

Some might have already noticed recent announcements.

AUI increased their interim dividend by 3.2%.

QVE increased their interim dividend by 5%.

Who needs a 1.7% CPI payrise

 

Evidence of a logical thought process has gone into this which is very nice to see. I can only add a couple of points:
1. 10k is a general brokerage cutoff, so I'd go for that over the arbitrary 7k.
2. If you use Commsec you can get free brokerage on FGG and FGX, which will allow you to buy in smaller parcels - remember time in the market. You can also set buys at a few cents lower than market for 1000 shares, which can get picked up at times to give you a bit of a discount without worrying about finding the cash to fulfill the order.
3. You will not be able to keep the allocation exactly as planned but don't worry, let it guide your purchases and remember there's no need to sell to balance IMO @ just buy more.
4. Setting criteria to rank shares at any point in time based on NTA, dividend yield, historical averages etc will help you select what to buy without subjective bias; rebalancing will obviously influence this decision.

Not advice.

 

Thanks for the extra tips, I will definitely take that onboard!

 

With regards to using NTA, how do you guys use this to determine whether it is “enough” of a discount to purchase into a company or whether the premium is “excessive”?

 

Well, I haven't been investing for very long but I decided to go digital too. Just want to understand importance of keeping actual pdf files.of executed orders (buy/sell) when I am maintaing a spread sheet.

In MS excel workbook I have various sheets each LIC holding has dedicated spreadsheet while few durect shares are on 1 sheet combined with various columns:-
ASX Code, B/S , date, quantity,price, brokerage, divis, spp and franking information.

So everytime I B/S or receive divis and take part in spp details will go there. So my question is when nabtrade/commsec send the executed order summary-Do you still save it or entry in spreadsheet will do?

 

I wrote the attached LIC Guide which might help. It covers NTA including comparing It to longer term averages etc. With the older LICs in particular some are happy to ignore NTA completely given that with buying them over a long period of time it tends to even itself out.

 

Thanks! I do have that guide printed out somewhere, I’ll have another read.

 

Dividend records are only for annual tax processing so I keep them in a tax folder separate from other Buy / SPP / Sell etc Transactions that need to be kept long term for CGT purposes. Dividend records can be thrown out after 5 years like most tax records.

I keep all PDF transaction documents. Law generally requires that these be kept for 5 years. In the case of CGT that’s 5 years after the Sale event.

I have a separate folder for each entity, Personal / SMSF / Family Trust. For example:

JOHN DOE
.... SHARES
.... .... Xcel S/S (All Share Transactions, no divs, grouped by share name)
.... .... ARG (Statements)
.... .... AFI (Statements)
.... ....
.... ....

TAX
.... 2018
.... .... Xcel S/S of all Dividend Transactions grouped by share name
.... .... DIVIDEND STATEMENTS

 

I love that you've got such a structured plan. I just tend to be a "well, I've got a few spare $$$ - what else is in the offerings that I haven't got yet?". I need to do more Aus vs Int analysis etc. Thanks for the kick in the bum - I needed it.

 

He he. Truth be told that’s all I’ve ever done except it’s usually in regard to what to top up next. If something’s a great bargain I sometimes grab what I can regardless of whether it’s considered unbalanced portfolio wise.

Thornhill and @SatayKing are similar from what I understand. SK can confirm if correct or not? But he seems to have run off yesterday.

We’re not total return, asset allocators fixated on maintaining the perfectly balanced portfolio in an attempt to reduce capital volatility. It’s simply about continuing to build a growing income stream over time whilst ignoring the ups and downs of erratic share prices.

 

Ahhhh gotcha thanks @Nodrog , will make adjustments to the spreadsheet and folders. Our (me and my wife) holdings are under our names so 1 folder each with multiple files/folders.

Thx for the tip on keeping divis in side for annual tax purposes -makes sense

 

If you had a choice between buying MLT and ARG for example, all things being equal, if one had a better NTA discount that could be the clincher.

Forgot to premise this with my assumption (which may be wrong) that you would buy as soon as you accumulated 7k regardless of the market conditions. That is, even if all LICs had a large NTA premium you would be buying to maintain consistency in the dollar cost averaging. The alternative is buying the ETF in that scenario because ETFs are always at NTA.

 

Hi @FruitCake@, congrats on starting this journey.

I want to ask what factors do you use to decide the portfolio ratio?

60%international and 40% Australian-based on the exposure because Aus represents only 2% of the world share market?

In relation to yiur LIC's - do you decide what % of portfolio be ARG,AFI etc based on the yield, history, performance?

I am.in the accumulating phase and my portfolio is very small (lobg way to go to million $ or even $100K at this stage) I just buy parcels under mine and mrs name of our selected LICs but I haven't thought about balancing or setting rules on the % holding just yet.

Keen to know the fundamentals behind this.

 

@Nodrog , I have joined this site and getting myself familier with this-alot of reports. I am.unable to find a "Search" option- Do we.have to go page by page to look for the lic report I am interested in or is there an other way?

 

Oh no. Why?
Where has he gone?

He’s been a great addition to this forum!

Blacky

 

Had the dirty with the Mods who deleted a post of mine. Nothing really as I was not in the best of moods anyway at the time.

To be fair, being a Mod is a thankless task at the best of times and in reality if you're part of a private forum, accept the decisions and get on with it or, if you totally disagree, don't be part of the forum.

How to select the "right" LIC for you the parameters to use are:

• surplus cash available;
  
• dartboard; or
  
• gut feeling;
• estimate of asset allocation and what you prefer (International vs Os, funds already allocated to each);
• is it too pricey (NTA, Yield, etc)
• how much pain can you and yours stand.

Simple in the extreme. So don't make it so frigging hard. Only an out there viewpoint of mine.

Back to sulking for a while - actually I have a heap of work to do assisting a friend of mine doing some house maintenance. At least I know what a rattle gun is and how to use one. He doesn't

 

Good discussion folks. Just did a quick Excel to see how @@FruitCake@’s journey could pan out using historical data and based on my approach of focusing on the total number of shares to produce a desired future income. This approach takes your mind off price fluctuations, which is really important not only for @Nodrog and us oldies but also for the younger accumulators.

In this spreadsheet I’ve looked at what happened to someone investing in AUI shares (@Nodrog’s first love ) since 2001 (about the time I seriously got into LICs) and continually DRP’ing and DCA’ing about $7K per quarter (to mimick Fruitcake’s approach ).

It took just over 16 years, from 2001 to 2017, for that person to achieve the 58K pa likely to provide them with a comfortable retirement. A quite amazing result considering that in that period the market went through extreme upheavals with AUI still not achieving its 2007 peak. Just goes to show how powerful the dividend approach is.

Assumptions used:

• Inflation 3% throughout
• DRP all dividends
• DCA every quarter regardless of NTA, starting at $4200 in 2001 and $7000 now, to include inflation
• Target income of 35K in 2001, about 58K now

Result:

• Someone owning just 10% of their target number of shares in 2001 would have achieved 100% of it in 2017
• Franking credits were not included in the calculation for the accumulation phase, only for retirement. Full franking inclusion would shorten total length by over 2 years to just 14 years
• Notice how dividends went up while prices plunged during the GFC
• Notice how the gap closes from both ends i.e. while share holding goes up (due to DRP and DCA) the share number target continually goes down due to dividends beating inflation. I’ve talked about this effect in a previous post – a great motivator on your investing journey.

Here’s the Excel. Feel free to play around with the starting figures and DCA contributions (yellow cases).

 

Because of franking credits primarily, my portfolio is high on the home bias for sure and I know it won’t likely see the same growth as the international part but I wanted a chunk of my portfolio to focus on smooth-ish dividend yields. I could achieve the same with some of the international LICs but they are expensive, management fee can be more than 1% and there’s the performance fee on top of that so at this point I’m more comfortable with an ETF to get my international exposure as I don’t know enough at this point about any of these companies to justify paying them extra. FGG will be the outlier in this but, it’s only 1% to gain access to a variety of managers, that 1% is going to charity and no brokerage with Commsec are big ups for me.

I haven’t focused too much on weighting’s on individual companies as of yet, really I just picked a bunch I liked, worked out their mandates and buy the ones that will fit with my overall allocation balance. Some of the older ones like ARG, MLT and AFI have a bit of overlap between them and at this point which I decide to purchase next will be based on NTA, yield history and performance.

My allocation between Large caps and small-mid caps are based on how much risk I’m willing to live with. The portfolio is tilted towards large caps with the tried and true old LICs and VGS to track the international large caps but I have about 30% going to smalls to take advantage of any growth that will come about and for the extra diversification.

TLDR: In summary my fundamentals are based on what feels good in my gut and what helps me sleep at night which will be different for everyone else. Not advice.

 

Definitely will have a look at this when I get home, thanks for putting this together!