LIC & LIT Listed Investment Companies (LICs) Q3 2018

One aspect that is a bit easier to predict, but is still speculation, is buying a LIC you like, that usually trades at a premium, when its going through a rough patch and has gone to a discount.

If they start performing again and the premium comes back (usually right after their performance translates into a higher dividend - ties in with what @Nodrog said about how yield focused SMSF holders are)... you benefit from the re rating.

But yes, speculation, for people with nothing better to do!

 

MIR would probably fit this bill wouldn't it???Has been trading at significant premiums for a good while now, recently the nta gap has narrowed but still moderate (3 to 5%).

It's whether people have the onions to believe in the company mission statement and objectives to keep ponying up the cash!

 

Typical LIC investor. In this case a classic scenario with DJW (enhanced yield through options trading) illustrating yield trap.

Hungry for yield investors drove the NTA premium up to around 50%. Alas dividend cut and head for the hills they did. Now back trading at around NTA. So whilst those battered and bruised are hiding in the hills DJW awaits the next generation of retirees to repeat it all over again.

DJW:


That said as they say everything has a price at which a share might become worthwhile investing in.

Moral of the story is no, and I mean NO, LIC is worth paying a significant premium for! Maybe a minute or so checking NTA is time well spent.

 

Around April DJW was worth it. Well, I say that in order to convince myself I made a good decision. I rarely make "good" decisions.

 

@SatayKing May I ask how are you positioned to capture the international market? Are you content with DUI and its exposure via a couple etfs or are you also invested in int etfs yourself or content with your portfolio tilted to the Aust market with local lics for the divvies? Hopefully it's not too much too ask! Cheers!

 

Yes that’s why I concluded with:

But as you have said in the past it’s really is a income focused LIC. Those hoping for capital gains need to look elsewhere. DJW is still around the same price after 20 years and not a great deal more than when it Listed:

 

I think we all just have to bow down before the wisdom of the Invisible Hand, and just assume that it moves really slowly.

 

Well, yes, if the LIC had no fees.

 

@pippen currently it's PMC, PIC (very small int. component Grrrr but that may change) plus DUI where around 14%. is int I think. No ETF's present but that may also change. However, it would mean one in and one out as now I think I really don't want to add more holdings. I'll add to what I have but not inclined to do the gathering bit any longer.

Very true. It isn't one I'd buy if expecting capital growth no matter what the web-site proclaims as it's aim. As you know, I think it's more of an options driven thing for income as opposed to anything else.

DJW has certainly assisted with building up cash but for capital growth, if that's ones thing, you'd be better off plonking a bar of gold on your kitchen table and valuing it each day and saying Oh look how wealthy I am. Mind you, you'd die of thirst in a week as you couldn't purchase water since a gold bar doesn't produce income. From my perspective at least.

 

But of course if one reinvested those hefty dividend distributions there would certainly have been growth.

 

Fees are only a small reason imo, it's the expected performance that gives the discount/premium to NTA.

 

What about the actual assets the LIC holds?

A quick glance at GOW tells me it is made up largely of commercial property around Coffs Harbour... so it's quite bit different to buying the ASX top 20, no matter the fees.

What should the price of such assets be? I dont know, but I'd say maybe the market is right to price them differently to a portfolio of large liquid ASX companies.

 

, but you said VGS (& ALI) was purchased recently?

Yes the minimal exposure to Global stocks currently by PIC is disappointing. In regard to DUI they stopped holding global stocks for a long period until relatively recently:

That’s why I like to hold a simple broadly diversified ETF like VGS. You never know what active fund Mgrs are likely to do. The value argument is often used by the Mgr for reducing / eliminating global stocks from the portfolio. But what about risk management against Home country risk and the Mgr getting the call wrong?

I still hold PMC being a legacy holding. The income is nice and the tilt to emerging markets (Asia in particular) fill a bit of a gap in VGS’s portfolio (no EM).

A long hard day in the yard, a meal at the pub and some drinks. So incoherent ramblings even more so than usual.

 

I did get them too. Damn, I'm totally brain dead lately probably as a result of a few matters on the burner around here and starting to weigh on me.

It's 10% of cost base so that makes:

PMC
PIC
DUI
ALI
VGS

And BPay for PIC 1 for 4 EO has gone today so that'll add to the 10%.

 

Thank goodness, I was getting worried about your memory.

 

Well, I am to be honest. I am looking into handing the admin/decion side of things over to an external source. Don't know how or what it will cost but I'm becoming less and less inclined to deal with the s*&t. Sure it isn't difficult physically being paperless now but it feels rather wearing lately.

Alternatively, I do nothing, i.e. no buying unless it's corporate action, no selling apart from the direct company holdings. Just sit. Not overly interested in the SMSF either which is a concern so It could be the first to hand over. Discussions will likely be arranged I think.

 

Oh dear mate so sorry for my previous comment. My apology.

One never knows what can crop up at any age for that matter hence my progression toward simplicity. In my case around 50 it was accidentally discovered I have an thoracic aortic aneurysm. Because replacing the aorta (and likely the valves to) is major specialist heart surgery they don’t operate until the risk of the operation outweighs the risk of not having it done. In the meantime they tell me any sort of straining, lifting more than 10 - 15 kilos, raising blood pressure too much as in digging hard ground / stress / anger etc or a hit to the chest could potentially be the last thing I do. But being on an acre property and a desire to be active these rules are often broken, not stupidly so but often without thinking. So one just never knows! Hence at any age it’s worth considering one’s heirs who are left behind to manage all this stuff if an unfortunate event (sometimes abruptly) happens.

Too much information and enough morbidity. So back to investing. The attitude toward our SMSF is strange. With all the rule changes, having to sell assets with age due to minimum pension withdrawal and estate issues I just can’t get interested in it as much as personal investments which feel more permanent.

 

Not good there @Nodrog. Take care. I'm almost in the same boat but in my case it's abdominal. Found by chance. Bloody docs suggested I give up coffee to reduce the risk. Phooey on that.

As to the SMSF, it's all well and good having one but I take the legal responsibilities associated with it seriously and that is the aspect which I am considering as I am single. A SMSF ain't there for BBQ talk.

Sure the holdings in a SMSF can replicate one's personal share holdings to a large extent but there is an additional legal overlay and an additional purpose which I think many don't fully appreciate. I don't even view it as "my" money. A very strange way of thinking I agree but I tend to administer it in the abstract i,e, the member.

I don't know how many have this issue but sometimes it can get me down as there isn't anyone in my immediate vicinity off whom I can bounce ideas and stop me from doing stupid things. Of course, that can also happen where one's partner has a lack of interest. Dangers everywhere.

Sometimes I feel it's a good idea to sit back with a nice cup of coffee (so there, doc! ) and contemplate "Should I be doing this?" If the true answer is no, then out source it. Difficult one.

 

I suppose that’s why some aging SMSF members shut it down and move to a low fee Industry Fund so they can just forget about it and receive their pension regularly without the stress and responsibility. Even with an SMSF advisor / administrator you are still involved in the process making it difficult to remove yourself from the process completely.

Trouble is given a sizable SMSF including accumulation balance CGT and transaction costs are an issue. Perhaps if Labor abolish franking credit refunds which impact SMSFs much more harshly then the cost benefit is more worthwhile. And one gets to offset the franking credits (that would be lost in SMSF) in accumulation against CGT during the transition to an Industry Fund.

Plenty of options out there but of course not an easy decision.

 

Of course the market is right, we have assumed the EMH is true!

In the case of a hypothetical LIC which holds direct shares and has no fees, if it traded for an extended period above or below NTA that would be a direct contradiction of the EMH.