ASX Shares What's looking cheap on the ASX?

Have look at MLTs holdings, it's roughly a proxy for XJO (ASX200). We can make a back of the envelope assumption given we have a point in time NTA for MLT and knowledge of XJO movement since that time, which provides a guide for MLT
NTA movment.

Ie. Index falls 10%, MLT NTA will fall by 10% +/- a couple of %.

 

QBE and AMP look attractive

 

Buying LICs in a downturn is moot.

On one hand with SP going down, you’re buying more shares with less $, but on the other hand with NTA usually dropping much more than SP, you’re buying less value with each share. End result is debatable and should be looked at case by case.

Same logic would work in reverse when selling LICs in a market upturn.

 

Really? Probably more like a couple especially if you exclude blended funds (ie mix of Oz and Int) with the dividend often the result of trading activities. Very different than the pass through of company dividends as is the case with a number of Oz buy and hold LICs. Plus any dividends from the international LICs company holdings can be chewed up in very high Management and performance fees. The dividend from underlying holdings is the most reliable income so you can be sure the fund manager will always grab that to cover their fee before the investor ever sees any of it.

Don't get me wrong as a retiree my benchmark for International stock exposure in our portfolio is 10 - 20% owned through the likes of PMC, FGG and PIC. But one needs to realise that the dividend from International LICs is unlikely to be as reliable as the Oz ones such as ARG, AFI and the like. I tend to look upon the International LICs as more of a diversifier but favouring those LICs with the likelihood of paying a somewhat decent dividend. However I'm always prepared for the possibility that the dividend may be unreliable and at times cut completely.

But getting back to the contrarian issue with every man and his dog pushing International exposure lately (just look at the number of new International funds jumping on the bandwagon) I'm not sure now is the best time to be jumping in there aggressively especially the US. A couple of years ago for sure.

Could well be proven wrong (my wife tells me I'm always wrong with everything) even though the seller of my crystal ball assure me it is 100% accurate

 

I'll be keen to see the list you put together.

 

I might try catch it when it bounces off the floor....then stab the cat and sell before it hits the ground.

How many ups and downs are the world markets copping?

Wait for the upswing in a weeks time.

 

Great post, austing. As a retiree you need to be well assured of the consistency of the dividend. and the point on this being more consistent if it is coming from underlying dividends is a good one.

My point on international LICs paying fully franked dividends came from watching the presentation of CDM recently. He mentioned that the conventional wisdom is that overseas managers can't pay fully franked dividends, but that simply isn't true. In the case of CDM and others, they are a trader for tax purposes, and hence pay tax on their profits and pay this out as franking credits in dividends. Your point on this not coming from underlying holdings obviously applies here. But i would expect more overseas focussed LICs to take this approach and pay out dividends that are fully franked.

I agree that everyone has been crapping on about overeas investment recently, as tends to happen after significant investment performance. However, I think it's a valid point for so many retirees who simply own the banks, bhp, telstra, wes and wow. Less so if you own the 10-20% overseas exposure you mentioned, along with QVE etc that I remember you talking about before. But yes, now is probably not the time to be diving in.

Just to list some more LICs if you are interested.

GVF - invests in undervalued international LICs. 6% ff dividend yield
CDM - over 50% is international exposure at the moment. 6-7% FF
PMC, PAI I am a fan of as well. I won't be touching PMC at it's current premium however
FGG looks excellent. But due to it holding some overseas trust structures that don't have to distribute income, their dividends will be lower than FGX
PGF and PAF have had excellent performance, but they have stated dividends aren't their focus.
ALF started investing internationally a while back, though the cynic in me thinks this is an marketing move. Good performance historically though. 6-7% FF
CAM has 30% overseas and pays good dividends quarterly, but it's NTA performance data is lacking which to me seems pretty dodgy

Now that I had to actually write them out, you're right... there aren't as many as I thought!

 

If you are talking International LIC's the standout for mine on the ASX (ie. the only one I hold) is MFF. Managed by the legendary Chris Mackay with huge alignment (he is largest holder with the majority of his family wealth - $90m in the stock). When he made a motza and didn't want to do the MFG thing anymore, he stepped in to a form of semi retirement to run MFFs portfolio. There is no advertising, no press or anything as he simply isn't interested in any of that. I've met the bloke once and heard him speak (which he does rarely!) and he is brilliant in a savant kind of way. The genuine article this bloke with zero sales about him, and couldn't care less about attracting FUM.

 

MFF does indeed seem like a very solid investment IMO. The only thing I don't like is the 1% dividend yield, which makes it difficult to gel with my desired approach (buying and holding shares and eventually living off the income).

 

Dick Smith.....

 

Hi BingoMaster,

Certainly in the case of CDM etc as an Oz based company they can of course potentially pay fully franked dividends. That is a valid point. But as mentioned much of it will be from more volatile trading profits. Not the sort of fund I would want to rely "heavily" on for my retirement income. But you are correct. I was mainly highlighting that the number of more pure International (ie mostly International as opposed to blended with OZ) LICs paying "large" dividends is very small. The whole obsession with full franking I feel is overdone. I only care about the net cash amount that ends up in my bank account.

Also be aware that the LIC sector is very difficult for fund newcomers to break into and succeed long term. This current trend of LIC favouritism played out a number of years ago with a rash of new listings. A number of them didn't survive and some still continue to struggle to gain support. LIC investors are a pretty conservative lot and often feel safer with those managers that have reasonable FUM, have a proven track record particularly in the LIC space and the better dividend payers. Hence if I'm going to invest in an LIC I like to know it is highly likely to be there in the long term. A couple you mentioned I wouldn't feel comfortable with.

MFF as Falcon mentioned is an excellent fund manager but even it struggled for a long time. It doesn't pay much of a dividend but Magellan overall due to its size and Brand along with excellent performance has resulted in it gaining substantial support including in the LIC space.

Take for example the somewhat more recent listing of PGF. Excellent manager with a proven track record but it is struggling to gain support. And because it has stipulated that dividends is not its focus as a newcomer it may be difficult for it to win investors over. Hence its noticeable discount even though International investing has been in favour of late. However in the case of FGG also a newcomer it has Wilson (well known in the LIC space supporting and promoting it) and seems to be doing better. Doesn't mean to say it is better than PGF but just goes to show what a difficult space it is. The danger is that if a significant discount lingers too long in the LIC space the fund can go under for a variety of reasons. So it pays to choose wisely!

What I wish for is a low fee, value focused, mostly buy and hold LIC that invests in excellent overseas "dividend growth" companies. That is an overseas equivalent somewhat similar to the likes of AFI and ARG etc. It was rumoured that AFI might had been considering such a fund but not sure anything will eventuate.

 

@austing I remember Ross Barker had mentioned that a year ago or so I think............but I think that for a DGI / buy hold investor like AFI is, that the lack of flow through dividend imputation is unattractive to a lot of their typical holders. ARG's Global Infrastructure offering AGLI has gone over like a lead balloon it would seem with a wide NTA discount, and although quite a different product, they will have been watching closely.

I reckon its a balancing act - take yield where you get a free kick on dividend imputation (ASX) and take growth in the form of low payout vehicles or internal compounders for the most tax effective long term outcome Internationally.

 

Thanks austing, excellent post once again.

You make a good point regarding the need for LICs to "win investors over" for them to gain traction, and this being the case for MFF in the past and PGF now. I feel the missing link with these funds is the lack of dividend. I.e if the LIC is trading at a discount, and there is no dividend coming in, then the only way to "realise" the value is for the LIC to go up in price and this requires "winning investors over".

However I think it's very different if the LIC is paying a solid dividend. Then regardless of whether investors take it up, you are still getting the value buying it when it's trading at a discount to NTA. In fact, you are getting more value due to a better dividend yield.

That's one reason I am more comfortable with the higher yielding LICs which dish out all their trading profits as fully franked dividends, over say PGF or MFF - I'm not reliant on the rest of the market recognising the manager's value.

However I agree they're probably not suitable for a core holding, more in there for some diversification for people who already own the older LICs or large holdings in ASX20 stocks.

 

Think the other reason that overseas (primarily US) stock is getting a lot of favourable attention is because the general consensus is that the AUD still has a fair bit of tanking to do. Quite conceivable to make a 20% FX gain on the shares over the next year even if they don't perform all that well themselves. Obviously there is always risk of the opposite direction but it seems very unlikely at this point, sort of like interest rates in Australia going up!

 

I am of the contrarian mindset as well and yes..... has been a painful year.

Some food for thought..

A Painful Year for Contrarian Trades - A Wealth of Common Sense

 

I may as well quote a bit of Carlson too, fitting for the current circumstances ;

A few truths about bear markets in stocks:

1. They happen. Sometimes stocks go down. That’s why they’re called risk assets. Half of all years since 1950 have seen a double-digit correction in stocks. Get used to it.

2. They’re a natural outcome of a complex system run by emotions and divergent opinions. Humans tend to take things too far, so losses are inevitable.

3. Everyone says they’re healthy until they actually happen. Then they’re scary and investors who were looking for a better entry point begin to panic.

4. The majority of the people who have been scaring investors by predicting a bear market every single month for the past seven years will be the last ones to put their money to work when one actually hits.

5. It’s an arbitrary number. I have no idea why everyone decided that a 20% loss constitutes a bear market. The media will pay a lot of attention to this definition while it doesn’t matter at all to investors. The 1990s saw zero 20% corrections but two 19% drawdowns. Stocks also lost 19% in 2011. Does that extra 1% really matter?

6. Buy and hold feels great during a long bull market. It only works as a strategy if you continue to buy and hold when stocks fall. Both are much easier to do when stocks rise.

7. Your favorite pundit isn’t going to be able to help you make it through the next one. Perspective and context can help, but there’s nothing that can prepare an investor for the gut-punch you feel when seeing a chunk of your portfolio fall in value.

8. History is a broad outline of what can happen in the markets, not what will happen. Every cycle is different.

9. They’re very difficult to predict. All of the valuations, fundamentals, technicals and sentiment data in the world won’t help you predict when or why investors decide it’s time to panic.

10. These are the times that successful investors separate themselves from the pack. Most investors mistakenly assume that you make all of your money during bull markets. The reason so many investors fail is because they make poor decisions when markets fall.

 

The wonderful thing about investing is that we're all different in what we look for especially given what stage of life we're at not to mention psychological makeup.

He he, in regard to an International dividend growth LIC I agree it would probably be a dud in the LIC arena. Something that popped into my head as I was rushing to finish off the post whilst my wife was hurrying me up to go shopping. However although the dividend payouts would be lower than here over the longer term it is the stronger growth impact on the dividend that could be worthwhile. But given local investors tend to focus on "higher" initial yield and franking credits etc I agree many LIC investors are unlikely to be interested. Add to that currency impact as well.

In regard to MFF fair point about internal compounders. However might be okay for a younger accumulator but I prefer some reasonable dividend. Once I receive a dividend it is mine forever, capital you never know for sure if it will be there when I need it. Maybe a bit too much of the Thornhill influence over me in that an asset is something that rewards its owners by paying out part of its profits to its owners in the form of income. The remaining profit can then be channelled back into business for growth. But I'm retired now so income is more important and hence I'm not suggesting chasing capital is wrong by any means. As stated we're all different thank goodness, would be very boring otherwise.

Fun stuff ay.

PS: re Carlson a useful post Why Buy & Hold Works - A Wealth of Common Sense

 

ARG got beat down really hard at the end of today. 12mth low price. Still at premium to NTA, however not a bad price point if it looks to recover up to $8+ which we have seen several times in 2015. Yield over 4%.

ANZ @ $25 is a 7.3% net yield. Another decent price point .

pinkboy

 

Yes, you don't just do it to be trendy, consider value as well.

Also bear in mind Carlson is in the U.S. where investors tend to be more capital focused due to lower dividends than here. If you don't get it right in Oz provided you stick with quality Industrials paying good dividends you will be rewarded with decent income during the wait for better times. Get it wrong over there especially over an extended period then with bugger all income coming in and deteriorating capital this can make for a miserable situation.

 

@BingoMaster interesting points, but I would add that the low yield LIC just needs to continue to grow NTA, in order for SP appreciation. A well managed LIC at a reasonable fee that shows a track record of NTA growth will tend to at the very least maintain the NTA gap, but usually close it down. This happens in cycles of course, as LICs go in and out of favour. Of course there are some levers that can be used to close down the gap as well.

@austing i agree with the dividend focus for direct stocks (I hold the likes of Nestle, Johnson and Johnson, Philip Morris directly - all Classic DGI stocks, with no "growth" stocks) but I make a clear distinction between these single business stocks and compounders, be it a Berkshire or a MFF where I am wanting the access the skills of a proven capital allocator, the agency risk issue and concerns around capital discipline are far less a concern in these types of business and I want them to use the free cash to compound it (tax effectively) rather than return it to me, whereas direct stocks I typically have a different view... I guess it just takes mental leap to say, I will sell 50 units of stock each year, rather than just wait on divs if you hold these kind of stocks.