LIC & LIT Listed Investment Companies (LICs) Q4 2018

Discussion in 'Shares & Funds' started by Pleep, 1st Oct, 2018.

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  1. Pleep

    Pleep Well-Known Member

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    {Note from mods - thread continued from here: Listed Investment Companies (LICs) Q3 2018}


    Yes that’s a good point it’s not necessarily forced selling, thank you. But you’d still be directing your free cash/accumulation to bonds when stocks are rising. Now onto re-reading @Nodrogs reply :)
     
    Last edited by a moderator: 4th Oct, 2018
  2. Pleep

    Pleep Well-Known Member

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    @Nodrog it is not that you are tired, it is my inability to articulate myself. But you have made a good point. After reading copious amounts on PC I think I perceive my risk tolerance high and therefore shun bonds whilst accumulating with a salaried job.
    Tolerance to be tested one day! Perhaps in one of those centuries long recessions I heard about earlier :eek:
     
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  3. Globetrekker

    Globetrekker Well-Known Member

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    Great review of AUI by @Snowball. One further potential dislike for AUI not mentioned in the review is that AUI tends to be a lot less liquid than other LICs of similar and smaller sizes. It's not uncommon to have just one or two buyers/sellers at any one time and really low daily trading volume (sometimes no trades in a day), which is surprising given its size (just over $1b). Not a problem if you have no intention of ever selling once you buy, but a potential problem if you need to sell quickly with only one or two buyers with low bids at the time. On the flip side, with so few buyers/sellers, patience can sometimes be rewarded with great bid/offer prices.
     
    Last edited: 1st Oct, 2018
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  4. Nodrog

    Nodrog Well-Known Member

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    Sorry missed this post till now.

    I haven’t really looked into this but as a long term investor in WHF this is what I’ve noticed.

    Since around 2015 WHF commenced broadening their portfolio in effect becoming more like the actual Industrials index. Prior to that they ran a somewhat more concentrated portfolio using a traditional value approach from memory.

    After having completed broadening the portfolio they now appear to be taking a more automated quantative approach which is really simply an “enhanced index” approach where there is tactical under / overweighting of sectors and stocks.

    If anything this is probably an improvement over their previous approach given issues such as positive skew. That is by taking an enhanced index approach WHF reduces the risk of missing out on those small number of stocks responsible for most of the index gains.

    Some criticise this approach as still being Index hugging despite the attempts to under / overweight stocks in an attempt to outperform the index. But as long as the fee is low I don’t have an issue.

    It needs to be remembered that there’s currently no way to invest in an “Industrial” Shares Index Fund. So WHF is the best of what’s on offer. And given it’s relatively small size an MER of 0.40% is pretty fair.

    If anyone is interested in delving deeper into this (@Snowball:)) do note that Angus Gluskie is excellent in giving very detailed responses to email questions and might happily even agree to an interview? That would make for one hell of a Blog LIC Review on WHF:cool:. So @dranzer and others bookmark this excellent blog, you won’t be disappointed in @Snowball ‘s excellent LIC reviews and articles on early retirement and sensible investing etc in general:

    Strong Money Australia - BUILDING FINANCIAL STRENGTH AND A LIFE OF FREEDOM

    Here’s WHF’s investing process introduced in the last couple of years. Looks sophisticated but the end result appears to be just an “enhanced” index approach! I haven’t researched this so each investor needs to do their own research:

    844DD516-D09B-4C67-AAC8-7F1F03F98813.jpeg

    AE0CF029-E4BF-4FA8-BDD2-1E54C8A232BF.jpeg

    FC21D9B0-0FF1-4D0F-81CD-67321DE69994.jpeg
     
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  5. SatayKing

    SatayKing Well-Known Member

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    Plus ya get some exposure ("shudder") to A-REIT's I understand. Oh well, nothing is perfect.
     
  6. Nodrog

    Nodrog Well-Known Member

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    He he, well yes but AReits are constituents of the “Industrial” index which have been great performers in some years “post” GFC. I suppose WHF with their enhanced index approach are just trying to make sure they’re not missing out on the “Industrials” index winners in a given year:

    C9805CB4-98A7-43F9-9F29-2B73AE95D2CF.jpeg

    Then again it works both ways. Using their traditional approach WHF held NO Listed Property when the GFC hit. Would their new enhanced indexed approach have avoided this?

    LISTED PROPERTY (during GFC ):
    5FFE7336-5BD9-4111-BF72-45E57052104B.jpeg
    B3E143BC-22BC-4DEC-8687-F18B8D6537D4.jpeg
     
    Last edited: 1st Oct, 2018
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  7. tvadera

    tvadera Well-Known Member

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    Anyone participating in FGG SPP? I just BPay'ed my share, closing date is 05/10 @ 5pm, issue price is $1.34
     
  8. Julian

    Julian Well-Known Member

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    I have a question for the brains trust, and as far as I can tell this is the best place to ask it. If I want to invest for a child from age 0 until age 18 when the investment is handed over to them, what's the best way? My marginal tax rate is 34.5%. I see three main choices:

    1. Start a share trading account with the child listed as a beneficiary. Start with $2500 in VAS and $2500 in VGS. Every 12 months from then buy a new parcel of shares for $1800 + brokerage, either topping up an index fund or purchasing LICs based on favourable NTA discounts, using much the same philosophy as is promoted by the experts in this forum. When the child turns 18, pay the CGT, and either pay for off market transfer to the child, or just sell and give the child the proceeds depending on their plans/preference.

    2. Invest $5000 in Vanguard Diversified High Growth Index Fund (retail) at a 0.9% MER (this is the fund: Investment Products) and then make an automatic monthly BPAY of $150. No brokerage is paid. Just the MER. The fund can be transferred into the minor's name for no fees when they turn 18, but I just pay the CGT. Or of course just sell it all and give the minor the proceeds.

    3. Invest $5000 in a Generation Life investment bond, split 50/50 between Aussie shares index and international shares index with an MER of 0.7%. Continue to BPAY monthly amounts of $150 with no brokerage. It's a "tax paid investment" so there will be no CGT when it's transferred or paid to the minor, but to be honest I really can't find any info on how it is taxed within the investment bond. I suspect that there is really no "free lunch" and it might actually be taxed at 30% every year on unrealised capital gains. Given that there would normally be a CGT discount of 50% if you hold shares for more than a year, this seems bad. Have I missed something?

    Which option would you choose? Are investment bonds actually scams disguised as tax havens?
     
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  9. Goodison

    Goodison Active Member

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    Hi Julian, you've posted much the same question on the insurance bond thread.

    Have a think about what you are asking... and I quote..

    "taxed at 30% every year on unrealised capital gains".

    The key is in the very term you are using "unrealised" ...

    If you have an unrealised gain.. it means you have not triggered a CGT event.. and if you have not triggered a CGT event, why would you think any CGT would be payable?. Generally speaking, you need to actually turn an unrealised gain into a realised gain before CGT is applied. (I am not an accountant or tax professional).
     
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  10. Globetrekker

    Globetrekker Well-Known Member

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    I've looked into investment bonds before - my understanding is that tax is paid by the bond on (1) any investment income generated by the assets the bond invests in (less franking credits) plus (2) CGT on any realised capital gains from assets that the bond sells
    (not on unrealised capital gains)
    . The tax rate paid is the company tax rate (30%). The value of the bond will obviously drop by the amount of tax paid by the bond. No CGT is payable by the investor or beneficiary when the bond matures and you can nominate an age of up to 25 for the bond to mature (if you think 18 is too young for the beneficiary to be getting a large chunk of money).

    So if you're paying more than 30% marginal tax then insurance bonds look good from a tax perspective, but you also have to factor in the 0.7% MER (compared to around 0.14% for the big LICs), the performance of the fund manager, and flexibility of changing your investment (you are locked in for 10 years with an investment bond - you lose the tax advantage if you withdraw earlier). Note that I'm not a tax accountant or tax advisor, DYOR!
     
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  11. Globetrekker

    Globetrekker Well-Known Member

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    Yep, I participated too. Chance to pay $1.34 for FGG when its NTA is $1.40 was too good to pass up, especially as it usually trades at a premium.
     
  12. dunno

    dunno Well-Known Member

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    Who pays for the discount?




    Hint, your profile picture is very fitting for current shareholders of a lic that issues shares below NTA
     
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  13. Globetrekker

    Globetrekker Well-Known Member

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    True, the newly issued shares will dilute NTA, so existing shareholders who don't participate will essentially be paying the most for the discount, while those taking part might be better off depending on what their current holdings are and how much they take up.

    Ordinarily I'm not a fan of offers at prices below NTA for that very reason (eg BKI and PIC recently), its often a cash grab that benefits the fund manager most of all because it increases their FUM and hence their fees at the expense of existing shareholders.

    However, in this case I can forgive these guys as (1) the NTA was $1.34 when the offer was made (so at the time it was an offer to buy in at NTA with no dilution of existing shareholders, the NTA has just gone up since then); and (2) the fund managers for FGG work pro bono with all the management fees (1%) going to charities, so the biggest beneficiaries will be those charities not the fund managers. Not a bad outcome all round I think!
     
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  14. @FruitCake@

    @FruitCake@ Well-Known Member

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    I bought into the SPP myself as well, just a small amount and for the reasons you cited above. The big one is that the price offered was very close to NTA at the time of the announcement.
     
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  15. Hodor

    Hodor Well-Known Member

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    AMH has a SPP coming up. I just glanced over it as not interested. No discount to 5 day average price from memory (as already at a discount to NTA).

    Can't see why you would engage in dilution when you can buy on market for a pittance.
     
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  16. SatayKing

    SatayKing Well-Known Member

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    Never held AMH. It seems an odd structure to me. Almost as if it's trying - not very successfully - of being all things to all investors.

    Noticed PIC shares issued under the entitlement offer. About a 40% shortfall. Probably a few will be taken up through the general offer.

    Took up the entitlement offer only. Looking at other stuff for the available cash but no rush.
     
  17. monk

    monk Well-Known Member

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    Good thought Hodor glad you posted this,I didn't know what to make of it but it didn't seem a great opportunity/offer.
     
  18. dranzer

    dranzer Member

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    Thanks for the detailed response. I've already read SMA's reviews multiple times, they're really good. I'm definitely looking forward to one on WHF.

    On another note - what does everyone think of MIR at a ~3.9% premium? Their performance is comparable to WAM/WAX without the +20% premium.
     
  19. SatayKing

    SatayKing Well-Known Member

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    Whoo! Went to see about some funds going towards SOL. I'm OK with the management of it but the price and yield? Hmmm. I realise it's still CD but still.........

    Threw the dosh at MLT instead.
     
    Last edited: 4th Oct, 2018
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  20. pippen

    pippen Well-Known Member

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    Nice! Speaking of milton october is usually the month they announce a spp! Lets see!
     
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