Why the move away from LICs?

AFI, AUI, DUI, WHF all maintained or increased their dividends during that period, while MLT did what you said.
We live and learn.

 

It is good that some of them stuck to their guns. However, I'm now of the opinion that I want my money now, because I felt in some ways I had to hold onto MLT until I got those dividends that were rightfully mine.

Once I hit a point where I need to live off my portfolio I will feel comfortable selling when absolutely necessary, noting the cash reserves will reduce the risk of forced sales during a downturn. I will also try to maintain a mortgage on my PPOR from which I could withdraw in SHTF scenarios.

 

I ran the numbers back for 30 years to see what happened in crises before investing in LICs. Mostly they held the course, depending upon the size of the crisis, sometimes they reduced, sometimes they didn't. By holding a basket of them you "smoothed" out any damage, according to my numbers, so that's what I did.

I was a bit miffed with MLT's actions and indeed it does appear they held back dividends to sweeten a takeover deal, but as a long term buy and holder, I'm going to get that "missing" dividend amount back anyway now, it would seem. Or if I sold now, more. Yes it would trigger a CGT event but I can live with that.

 

I consider the note "Fully franked, sustainable dividends", which now appears at the bottom of ARG's monthly NTA announcements, is the better way of expressing it; 15c may be sustainable but 20c may not.

Then we do have a tendency to read into things meanings which are not actually there. And it becomes popular mantra and when it doesn't apply up goes the hue and cry. We're like that. Makes things interesting.

 

It's easy to overthink things; my view is that in the very long term, there is little difference between VAS and AFI/ARG/MLT, but I prefer the LICs. LICs have a habit of providing pleasant little surprises, such as special dividends, lic capital gain deductions, buy backs, dssp, spp, and mergers (although some people may not like this latest MLT/SOL merger). The dividend smoothing was very welcome during last year's market meltdown; AFI, MIR, QVE, PMC, WLE, GVF maintained their dividends (WLE & GVF actually increased), while ARG decreased their dividend a little. MLT cut their dividend a fair bit but (as Rog the Bear said), will be rewarding loyal shareholders very soon. Also, in more normal times, LICs have in-person AGMs with copious amounts of food.

I am a big fan of LICs, particularly for local market investments. If I were more interested in international investment, I would definitely go for low-cost VGS and VGAD rather than the high-cost international Lics.

 

I am a bit unsure myself on what LIC to move too now that MLT is going to go. I was happy with MLT because it traded under its NTA most of the time. AFI is trading at a premium, and to my knowledge, so is ARG.

 

@mistercoffee if I did not know better I would say this somehow @Nodrog had escaped from the Bogle heads clutches and is now living under a new identity

 

I hold ARG and VAS for Aus allocation. I can usually get ARG 2 or 3 times a year at or below NTA. This has certainly been the case for the last few years. If I cant, I just buy VAS. Happy either way.

 

To be overly dramatic, LICs have the following risks that ETFs don't:

• NTA risk, you don't want to get caught out and have to sell at a discount.

• Closed end fund, can be harder to sell out of.

• Company structure not trust, meaning they own the shares not you. At least with an ETF you own the underlying assets.

• Active manager risk, will the manager do badly, what happens if this manager quits or dies etc.

• Trusts such as ETFs & LITs must pass money onto the unit holders. LICs don't, due to being a company structure. LICs tend to hold onto some dividends to smooth out dividends. This lowers the overall yield, and stops you reinvesting back into the LIC or elsewhere for more total return. If you want to smooth out dividends, you'd just put a little of the excess aside on a regular basis. Instead you have some person who doesn't know your individual situation making the call.

• If you received the money directly through a trust/ETF, there would be less franking credits but overall higher yield. This makes it a wash. Considering it's a wash, why expose yourself to franking credit risk for nothing? These risks are not the end of the world, but include:

• Changes in federal law, such as no franking credit refunds. Not as bad as it sounds but you would've been better of with less franking credits and higher up front yield in this scenario, if you were in a position to get a cash refund from your franking credits. This could also lead to a drop in share price.

• Retiring or moving overseaas, you can't claim any franking credits once you are no longer an Australian resident. Study's for the most part show that franking credits are priced in, experts disagree on how much but it ranges from 40% to 80%. So they're worthwhile if your living in Australia, but actively work against you if you don't. Overall they're a nice bonus, but don't ignore diversification or take on extra risk just to get more franking credits. They're just a nice bonus.LICs

I say this as someone who believes investment behaviour makes the biggest difference, 60% of my money is in LICs and 40% in ETFs. I'm probably not going to change that mix.

 

Since, now you have simplified your investments to a point where there is hardly any stress to manage it who knows what wonders a stress free life will result in. Maybe you will outlive us all

Cheers,
Oracle.

 

Why the fascination with franking credits?

If VGS pays you $2000 unfranked and AFI pays you $1400 fully franked, you end up with the same amount of money after tax.

Comparing any other numbers (like $2k unfranked v $2k franked) is comparing apples with oranges.