LIC & LIT Most favourite LIC in the current market

What is your most favourite LIC with the current valuation if you have to pick just one?

 

I will preface my answer by saying: my favourite food is chicken, but that doesn't mean I only eat chicken. LICs, as the recent franking credit debate has taught me, are only part of a balanced diet.

Large cap asx :
MLT based on my portfolio but AUI is the sleeper if you can buy it cheaply.

Small cap asx:
QVE has gone out of favour but I haven't seen any reason why.

 

MLT large
MIR small (ex-50)

 

I like MLT and AUI.
MLT I think is better for a number of different reasons.

 

Since simplifying the portfolio I’ve settled on ARG as my preferred albeit not only LIC. No particularly strong reason but I’ve felt that over time it has been a bit less Index aware than AFI and doesn’t have the very high bank exposure of MLT. For a very long time now MLT has generally been very bank heavy. ARG also tends to take positions in other LICs when they’re NTA is attractive. You get a bit of AUI (top 20 holding), ALI, MLT, DUI etc indirectly through ARG.

I like AUI but the bloody liquidity (near 50% with charitable holders) is shocking at times especially for a larger buyer like ourselves. You need to consider that it’s not just a matter of getting in but at some stage you may need to get back out without being at the mercy of buyers.

Overtime I’ve become more inclined to invest in cap weighted traditional index ETFs. However also holding one or more LICs gives me a choice of buying opportunities based on NTA vs the index. Secondly it provides an opportunity to indulge in some tax loss harvesting at times as needed given that there’s enough of a difference between ETFs vs LICs to avoid getting caught out by ATO wash sale rule. Finally there’s a psychological benefit for some including me (yes I know, I’m working on it) of manager diversification.

 

I have bought BKI and QVE in the recent past. I have also bought some ARG as well (late March from memory) . The only LIC (out of the bunch I own) I have been hesitant to buy is WHF because it has been on a run of sorts due to the upcoming dividend payout. It will be out of favour soon after ex-dividend or some other reason and I will buy some more then.

I just keep accumulating through all the noise of elections / franking credits saga and sometimes surprise myself at how far we have come in the last few years.

Not advice.

 

Hehe.

The noise.

This one no good, fees are over the top for that, they distort the NTA/accounting and so on.

Then you ask yourself Do I care? When the answer is Nup, go for it.

 

MLT is my largest holding
Usually purchased at a healthy discount, probably because of its heavy tilt towards banks.

ARG is my favourite LIC.
Well diversified. Solid and boring.

VAS is my fastest growing holding
Set and forget.

BKI still own it ....only just!
This one I've put in 'time out' for poor behaviour.

AFI and AUI will sell out
Long term will exit these. I have too many overlapping holdings.

 

I also like the better sector diversification of Argo. It’s only around 16% banks from memory. Not saying banks are bad to own but if you’re buying an LIC you want it to be somehow different from the index. It also has the smallest concentration in its top 20 at under 60%.

AFIC looks suspiciously like the index albeit it holds almost no REITs.

 

Yep as per @Snowball, argo wont be leaving the stable any time soon! Just keeps ticking along and keeps the passive dividend income coming in.

 

Why is there such a concern or dislike with index weightings?

The weightings and specific stocks are there for a reason. Yes, sometimes the market gets it wrong but more often than not it gets it right.

So what if the financials are high? They are high because they have performed well over past few decades. The business of lending money is still profitable industry and if you need any assurances about its future prospects just look at Berkshires equity portfolio. You cannot get better endorsement than from Buffett himself.

Of the $200 billion equity portfolio of Bershire all the below stocks fall under the Financial Services Sector.

Bank of America - $25B
Wells Fargo - $18.8B
American Express - $18.1B
U.S. Bancorp - $6.7B
JP Morgan Chase - $6.5B
Bank of New York Mellon Corp - $3.7B
Goldman Sachs - $3.5B
Visa - $1.7

--------------------
Total $84.5B


That is 42.25%. Remove Apple which is around $45.6B you have financial services sector at 54.7% of the equity portfolio.

The argument is akin to people saying I don't like the tech sector in US being so high. So I am going to find other vehicles where the weightage of tech sector is low. Is that really good idea. The reason Apple, Microsoft, Google, Amazon, Facebook, Nvidia, Qualcomm have a higher representation is because they have done exceptionally well in the past.

I have said in past and I say it again. Don't seek diversification for the sake of it. Unnecessarily, prioritising diversification can cost you in the long run.

Cheers,
Oracle.

 

Just had a quick review of dividend yields and discounts to NTA for my favourite LICs.

WHF and MLT have the most attractive yields, at around 4.15%.

Discount wise, MIR is trading at only 1% premium which is well below it's historic premium of 10%. WHF is also at a decent discount of 10%, ARG and MLT at 4.5% discount.

Decisions decisions.

 

I topped up ARG last week as i had the cash. Has worked out well.

 

My largest LIC holding is MLT followed by PL8 followed by ARG.
VAS is still my largest holding out of the LIC/etf space however.

 

Not saying there’s anything wrong with index weightings. My point was if you’re buying an LIC you want them to be choosing a portfolio of dividend payers rather than simply mimicking the market.

Otherwise you may as well just buy the index.

 

Thanks for that @Snowball.

I started to reply to same post with similar thoughts and a numerous others but decided not to as these things tend to go round in circles. Then again the lack of desire to debate such things less and less lately might be a sign of old age.

 

Fair enough.

I must have misunderstood and thought the goal of buying LICs (particularly ARG) is more to do with diversification of different sectors and therefore less financials (compared to index).

Different LIC's go about different ways in achieving their goals. AFI tries to mimic the index (minus REITS), MLT tries to be overweight financials, ARG tries to have good sector diversification, WHF does it via industrials only (no resources) etc etc while our poor old index doesn't care as long as stock is performing well you can bring on resources, REITS, financials, healthcare, non-dividend payers etc etc and it will gladly oblige and include it in

But as mentioned by @Nodrog there really isn't much point debating on such issues. As long as it achieves your long term goals and helps you sleep well that's all that matters.

Cheers,
Oracle.

 

Do we need a poll, I buy LICs because of:

1. Low fee active management
2. Franked dividend yield
3. Total shareholder return
4. Non-index diversification
5. @Nodrog the guru

You can preference vote...... pick up to five numbers.

 

Anyone who votes for number 5 should seriously consider booking themselves into a mental health facility.

 

Haha 5!

The only problem is once you join the Income Investors Club, it seems you’re not allowed to leave

@Nodrog likes to keep the membership fees rolling in