LIC & LIT Listed Investment Companies (LICs) Q2 2018

Are you referring to this fund @The Falcon?

Malcolm Turnbull invests in hedge fund that bets on companies to fail | Daily Mail Online

 

I thought about going down that track.

The worry for me is that if the market experiences some weakness or the performance is initially weak the premium might not come.

No educated views on what the actually performance might be, unless you count 80-90% chance of underperformance long term

 

I've been thinking lately about the potential franking credit changes under the Labor government and its impact on my future investment strategy. I have another 10-15 yrs until retirement and we have been investing in personal names in Australian LICs only.

I understand the potential impact of the changes on VAS may be smaller than on LICs. However as VAS dividends are 80% franked, wouldn't the difference in impact be pretty negligible?

Another question for experienced LIC investors here: are you currently still investing in LICs?

 

I am not an experienced investor. I am still investing in LICs. I however will include VAS in my portfolio. ( I used to own VAS in own name).

 

Thanks Anne.

I know @pippen has turned off his tv and he keeps smashing LICs

 

Should franking credit refunds get abolished it’s sentiment that could potentially do the most damage to LICs resulting in an increased discount. Good for new “income” investors but a potential capital hit to existing investors? Some income investors won’t care and keep it business as usual.

Given our existing huge exposure to LICs we’re favouring vanilla cap weighted index ETFs going forward for risk diversification across Fund Mgr investment structures.

 

Thanks mate. I think it would be prudent to have lots of dry powder to jump in when the discounts occur.

I understand the potential impact of the changes on VAS may be smaller than on LICs. However as VAS dividends are 80% franked, wouldn't the difference in impact be pretty negligible?

 

Yep I have been in correspondence with the great man Peter Thornhill and he said just stay the course and keep plugging away!

 

Is the damage really that much different for the older LIC's vs VAS?
LIC's are 100% franked, VAS is about 80% so with Shortens proposal, those losing out would still lose 80% of whatever they would with LIC's, so with company tax rates they would lose 30% vs 24%. For someone on 40k/yr they would lose maybe 12k vs 14.6k/yr. Not a trivial difference, but do you think it is enough to make a majority of people choose VAS over LIC's for this reason? And with LIC's having higher dividends I am not sure the final return would be significant.

I would have thought that if people were going to look to change their assets that they would look for opportunities with no franking rather than going from LIC's to VAS.

But I'm curious if you (and others) think that there is really enough difference to have such an impact on LIC's compared to VAS. Maybe both would drop in value while some scatter to non-franked investments?

 

I suppose it depends on whether you’d prefer some of that extra 20% in your pocket vs donating it to the Gov’t if the changes come to pass.

Look all this is conjecture at this stage. The changes to franking credits may never get implemented or even if they were it may be different to what has been proposed.

I’m a nervy type so given our heavy exposure to LICs I just feel more comfortable spreading our risk by increasing our “existing” ETF holdings at opportune times. Besides I’ve said many times to enjoy the best of both worlds. That is, LICs when they’re cheap, Index ETFs when they’re not.

And this from Daryl Dixon, a LIC Veteran and advisor, who started me on LICs over 30 years ago:

Listed investment companies under threat

As I said I’m a nervy person who places great importance on SANF. Others will need to make their own decision based on their criteria.

Not advice.

 

Yep, have followed for a few years. Worth a follow in twitter and writes at Bronte capital / blogspot. Series 1 of “dirty money” on Netflix has an episode on Valeant, one of his more famous shorts.

 

@Realist35 I stay the course and buy LICs or VAS as per @Nodrog's strategy when the time is right (e.g. less of a discount on the usual 6 LICs but when the index is way down).

 

Yes, the difference will be the 20% in franking credits for those that are impacted, which is not insignificant. However, I am starting to become more Bogle as I understand the deficiencies in the LICs. In particular, their constraints required to stay as LICs immediately mean poorer performance.

I will continue to buy LICs when they are below NTA / on the nose but I will be much more choosy. Generally I will be going VAS, VGS, VAE, VGE, VEU combinations based on what I see as better value at a macro level. LIC counterparts when cheap would be PMC, FGG, PIC, EAI international and MLT, ARG, AMH, QVE, PIC, WHF plus some others.

At the moment I am not buying as it looks expensive.

 

I'm keen to buy parcels this quarter in MLT/MIR/BKI/PMC/PIA/GVF (price dependant of course). I'm happy with the research and level of understanding I've achieved for MLT/MIR/BKI/PIA however I've been struggling to find detailed reports or advice on GVF or PMC. Is anyone able to point me in the right direction as to their holdings or their current premium/discount situation?

 

I know nothing of GVF or PIA, but they look expensive. I like the rest although I know BKI is on the nose to a few here. PMC has been one of my best investments - they are a value investor with a great record. They recently lost their talisman Kerr Nielsen but that should change very little in their performance. The fees are a little high for my liking as I said, but they've outperformed all the ETFs I've been invested with. At the current discount to NTA MLT last week was your best bet. Alenatively buy V*S.

Google is your friend.

Not advice

 

I am bit lost and would really like someone to help me out with PMC. Just want to know what am I missing here.




The above screenshot is from Platinum website where they claim the returns of 12.7% p.a since inception. Investment objective states to provide capital growth over the long term.

Below is the long term chart of PMC I obtained from commsec. It is from July 1994. So in 24 years we have seen the price go from $0.91 to $1.97 so bit more than double.





What I fail to understand is the above chart wrong? How can a fund that claims to invest for capital growth with published returns of 12.7% p.a since inception only manage to do slightly better than double the share price over a 24 year period?

Cheers,
Oracle.

 

I’ve come to the conclusion most Mgrs are full of bullsh*t, they quote whatever figure gives the best impression. However it also pays to read the fine print:

So they’re referring to “portfolio” (NTA) NOT “price” return. You’re looking at the “price” chart. PMC traded at a huge premium earlier on which presents a very different picture compared to NTA return.

PMC has been relatively more about income than capital gains compared to their unlisted Funds. Based on what investors actually paid most of the time well yes you can hardly call it a capital gains play.

Overall we have been happy with PMC over the years. Then again I’ve mostly only ever purchased PMC on rare occasions when it traded at a discount. Rule of thumb, never pay an excessive premium if any! In fact where fees are high a discount should be demanded to compensate accordingly.

 

Thanks, without knowing how much premium it traded with it's hard to determine how much of an impact it has had on share price returns.

Interesting you mention that. On their website the investment objective clearly states to provide capital growth over the long term. Whereas in reality it seems to be an income play. Very strange.

Below is the dividend history I managed to get from ANZ share investing



As you can see the dividends per share in 1999 was 10 cents and in 2017 they paid 10 cents. I have to be honest their dividend history doesn't excite me and looks pretty erratic of late.

So based on information at hand neither their capital growth nor their dividends have shooten the stars for me.

@Nodrog What is it that you like about their past performance considering you are happy to pay them 1.1% + 15% outperformance fee?

Cheers,
Oracle.

 

When I first purchased PMC there weren’t any international index ETFs and only a few other rather ordinary International LICs.

Like all LICs their appeal is the ability to purchase them at a discount occasionally. This can make a significant difference.

As a long term buy and hold investor I tend to focus on NTA rather than price. PMC’s net Total “Portfolio” return had tended to outperform MSCI world index over the longer term but I think it’s gotten harder for them. To be honest initially the main reason was it offered international exposure with decent income and overall reasonable total return. Importantly it has an Asian bias.

Given what we paid for PMC and how long we’ve owned it we’re happy to stick with it.

But going forward I’m more interested in International Index product when opportunity presents. I look to ASX for income and now invest in International more as an insurance policy against Home country risk rather than seeking income / outperformance.

 

I agree. I wouldn't buy PMC above NTA and that rule will probably apply to my purchasing of all LICs unless a specific situation requires a change of thought.

Not advice