LIC & LIT Why LICs over ETFs?

SMSF now back in accumulation. I don't require the mandated income so may as well use super as it was never intended to be, i.e. a wealth creation vehicle. Can still withdraw lump sums if I wish to do so.

Not personally fussed about taxation issues. Not fussed about a lot of things to be honest.

 

Yes I did break they rules on that one,but I went in too hard to quick and the profit range will start above $2..71 .

They were once a very well run and power-full company and if you want to bankrupt a fool like me just give them the wrong information and it's only a mistake if I sell ,or as a day trader I know for a long time keeps falling in love with young Asian's prostitutes ,he knows the outcome before he walks in the door as it always ends the same way..Much the same as day trading ..

 

Thanks, I understand that bit including lump sum withdrawals but I was confused by the 97% tax free when accumulation is taxed at 15% but of course franking credits cancell that out?

 

Earnings are taxed at 15% as you know. The capital isn't apart from 15% on concessional contributions. So in my case 97% of the capital is non-concessional and 3% is the concessional bit.

 

Thanks again. Yes it was earnings tax I was referring to.

Labor won’t be happy with you re SMSF franking credits. And no doubt there’s enough income in own name to utilise most / all franking credits. So yes I doubt there is any reason to get fussed about tax.

 

Hehe. And if the current tax arrangements remain in place, meh. Simply additional funds for the SMSF to deploy in the assets. Set and forget and, hopefully, those who follow after I shuffle off will receive - at no direct cost to them since they haven't funded the assets - some benefit to assist them which has always been my intention.

 

And given that most of the SMSF capital is from non concessional contributions from memory the beneficiaries won’t get slugged 15% in tax. A wonderful Dad looking after your flock.

 

Most discounts to DRP and SPP are coming from the company back pocket - Yes, I understand this. In that case, the shares for ones who participate in DRP or SPP will not be diluted but the ones who don't will be impacted by approximately the discount amount.
Now, the mechanism of DRP and SPP is out of the way.

We can go back to the topic in OP.

When looking at the performance of LIC and ETF, I'm saying perhaps we also need to consider the DRP/SPP discount for the ones who participate. As I think the performance given is based on NAV and most of the time, it does not include the discount in calculating the end result. Although the benefit may not be a significant one. I'm also highlighting most of times, the amount of LICs under performs compare to its benchmark may equal to (or close to) the management fees.

Since the discount of DRP/SPP is often higher than management fees, would the total performance be almost equal (or slightly higher) to its benchmark at the very end? As ETF often doesn't offer DRP/SPP discounts, I think this is one of the LIC advantages. Although I'm not pro or against ETF or LIC.

PS: I also posted in another thread. I'm keen to get people's opinion on MGG. They offer DRP and SPP discounts however all the outgoings are covered by the parent (management) company, MFG. Hence, it shouldn't cause the dilution issue.

 

Doesn't take into account management fees, dividend reinvesting throughout, or taxation status, however.....

 

Also some are not 10 years old

 

How does milton go?

 

If we break it down really simply, you’ll be scraping out an extra 10+ basis points of return from the discount.

If the LIC is yielding say 5% based on its NTA and you get a 2% discount buying in or with DRP, those shares will be getting a 0.10% higher yield than the underlying portfolio. So this is the excess return created if you want to think about it like that.

It doesn’t nullify the management fee because fees are annual and ongoing. Your buy in price or DRP is once off.

But my understanding is performance is often based on reinvested dividends which would perhaps include any discount that comes with it (only guessing though).

I have no idea about MGG, but I’d guess they mean the costs associated with managing the DRP and SPPs are covered by the parent company, not the actual NTA solution itself.

 

4.92% p.a. CG
6.61% p.a. Divvies
9.65% p.a Total
For the same $10k over ten years.

Thanks for the screenshots Redwing. Handy to refer back to. I have a little "cheat sheet" on my office cubicle wall at work. Just a table of the returns for 1/5/10 year of my favourite LICs. No caption or context, just digits, dots and slashes. No one but myself knows what it is.
Keeps me focused on the end goal.

 

Thanks Snowball for the breakdown calculation. It further proves my initial thought of "insignificant" improvement in the, often reported, total return of LIC against benchmark but this is much more clearer.

Here is from the MGG offer letter: "To minimise dilution, Magellan Financial Group Limited, the parent company of Magellan, will pay the Magellan Global Trust an amount of consideration equal to the cost of the 5% discount to the NAV per unit from which the offer price under the Offer is determined (as described below)."

 

@pippen , here's the visual.

In Oct 2013 they had a 5 for 1 stock split

 

And throw in this rather confusing stuff regarding capital issues

15.11.1985 1 for 10 Bonus Issue from Capital Profits Reserve
19.05.1986 Bonus in lieu of Dividend from Capital Profits Reserve
05.06.1987 1 for 10 Bonus Issue from Capital Profits Reserve
05.06.1987 Bonus in lieu of Dividend from Capital Profits Reserve
15.11.1988 1 for 20 Bonus from Share Premium Reserve
15.11.1988 1 for 20 Bonus from Capital Profits Reserve - a fully franked dividend
26.05.1989 1 for 20 Cash Issue at $3.00 per share
10.11.1989 1 for 10 Bonus from Share Premium Reserve
08.06.1990 1 for 20 Cash Issue at $3.00 per share
24.05.1991 1 for 20 Cash Issue at $3.00 per share
23.04.1992 1 for 10 Bonus from Capital Profits Reserve - a fully franked dividend
11.05.1992 1 for 10 Cash Issue at $4.00 per share
23.11.1994 1 for 10 Bonus from Share Premium Reserve
12.12.1994 1 for 10 Cash Issue at $4.75 per share
15.11.1995 1 for 10 Bonus from Share Premium Reserve
06.07.1998 3 Milton shares for 10 Chatham shares at $7.756022 per Milton share
06.07.1998 3 Milton shares for 10 Matine shares at $7.756022 per Milton share
06.07.1998 9 Milton shares for 40 Milkirk shares at $7.756022 per Milton share
21.06.1999 1 for 10 cash issue at $8.20 per share
10.11.1999 Share Purchase Plan at $8.75 per share
13.11.2000 Share Purchase Plan at $8.86 per share
31.10.2001 Share Purchase Plan at $10.79 per share
31.12.2001 8,273,502 Milton shares issued for the acquisition of Cambooya Investments Ltd
28.06.2002 2,287,200 Milton shares issued for the acquisition of an unlisted investment company
08.11.2002 Share Purchase Plan at $11.70 per share
31.12.2002 1,739,112 Milton shares issued for the acquisition of an unlisted investment company
31.10.2003 Share Purchase Plan at $13.21 per share
11.03.2004 2,742,777 Milton shares issued for the acquisition of an unlisted investment company
01.04.2004 496,809 Milton shares issued for the acquisition of an unlisted investment company
29.10.2004 Share Purchase Plan at $14.10 per share
21.10.2005 Share Purchase Plan at $17.11 per share
17.08.2006 1,000,322 Milton shares issued for the acquisition of an unlisted investment company
23.08.2006 1,476,254 Milton shares issued for the acquisition of an unlisted investment company
28.08.2006 382,404 Milton shares issued for the acquisition of an unlisted investment company
21.09.2006 278,103 Milton shares issued for the acquisition of an unlisted investment company
16.10.2006 Share Purchase Plan at $19.60 per share
10.11.2006 1,888,353 Milton shares issued for the acquisition of an unlisted investment company
23.03.2007 1,895,976 Milton shares issued for the acquisition of an unlisted investment company
14.05.2007 2,424,582 Milton shares issued for the acquisition of an unlisted investment company
20.06.2007 252,477 Milton shares issued for the acquisition of an unlisted investment company
24.09.2007 1,223,252 Milton shares issued for the acquisition of an unlisted investment company
19.10.2007 Share Purchase Plan at $22.48 per share
03.10.2008 Share Purchase Plan at $17.85 per share
19.02.2009 3,555,958 Milton shares issued for the acquisition of an unlisted investment company
09.10.2009 Share Purchase Plan at $16.08 per share
26.02.2010 4,132,711 Milton shares issued for the acquisition of unlisted investment companies
20.08.2010 2,446,521 Milton shares issued for the acquisition of unlisted investment companies
16.12.2010 23,803,854 Milton shares issued for the acquisition of Choiseul Investments Limited
21.02.2013 521,464 Milton shares issued for the acquisition of an unlisted investment company
30.09.2013 Share Purchase Plan at $19.12 per share
22.10.2013 Share Split of 5 for 1 - number of issued shares increased by 501,886,204
24.02.2014 3,280,382 Milton shares issued for the acquisition of an unlisted investment company
04.03.2014 187,207 Milton shares issued under the DRP at $4.27 per share
03.09.2014 698,365 Milton shares issued under the DRP at $4.55 per share
01.10.2014 Share Purchase Plan at $4.45 per share
03.03.2015 712,273 Milton shares issued under the DRP at $4.56 per share
03.09.2015 998,879 Milton shares issued under the DRP at $4.39 per share
02.10.2015 Share Purchase Plan at $4.18 per share
03.03.2016 921,511 Milton shares issued under the DRP at $4.19 per share
02.09.2016 1,086,782 Milton shares issued under the DRP at $4.28 per share
02.03.2017 953,908 Milton shares issued under the DRP at $4.34 per share
22.08.2017 4,114,776 Milton shares issued for the acquisition of an unlisted investment company
05.09.2017 1,113,757 Milton shares issued under the DRP at $4.44 per share
01.03.2018 978,655 Milton shares issued under the DRP at $4.59 per share
17.08.2018 5,575,148 Milton shares issued for the acquisition of an unlisted investment company
04.09.2018 1,188,729 Milton shares issued under the DRP of $4.66 per share

 

You shouldn’t have mentioned the stock split. Would have been fun to see the reaction.

 

Just a vague memory now. Sort of shows something I guess. Was suppose to encourage liquidity. No idea if it actually did in repect of dollar value or turnover.

 

Think I read somewhere WAM was at a massive discount (20+%?) during the GFC because of the huge dividend cut. And they now trade at a 20+% premium.

So that’s a pretty nice tailwind for 10 year returns that’s hard to repeat

 

Less likely to happen in the future given the changes to accounting rules in 2010. So yes a tailwind unlikely to be repeated.