What are peoples thoughts on LIC's such as Argo Investments etc? are they a good long term investment?
Opinions - Listed Investment Companies (LICs)
coffeesnob085 on 02/09/2024 - 07:02
Comments
Care to share why? thanks
9/10* managed investments do not outperform ETFs. Mainly due to high fees.
*reference: my ass because I am too lazy to source it properly.
Depends. In fully efficient markets like the US then absolutely true.
Small caps. Not necessarily true.
Look at the Australian market because the index is dominated by miners and banks you can out perform but buyer beware and be prepared to sit around to wait (or get nothing at all).
Also need to check the manager's benchmark because ASX200 beat small cap index for a while now but there is small cap managers that are beating ASX200.
Its like asking if ALL SHARES and ALL PROPERTIES are a good investment.
The answer is:
Do your research and pick the one(s) you think will match your criteriaOP should mention why they are considering LICs.
Stick to safe banks. I am in a property fund and now they wont let us withdraw. Its good interest, but I cant get my money out.
Unfortunately a few investors in property funds can't liquidate their units since covid decimated the value of commercial properties, in particular office buildings.
We have shopping centres, but new management has taken over. Borrowings are too high
This has happened before when the property market went bad many years ago.
Cant see why they wont let you withdraw now unless its locked for the term of the fund
Buy a market ETF
LICs are pretty good, especially if you want the fully franked dividends. That's why they are popular for retirees.
LICs are good if you want smoothed dividends as most of them hold a profit reserve they dip into if they don't make enough. That is why a lot of LICs did not cut dividends during COVID.
Also you might find ones that are deeply discounted to net asset value (NAV) over the long term they might close that discount and you get an increased return. It is not advisable to buy one that has a premium to NAV.
I think the issue with LICs aren't the underlying investments within, it's the liquidity of the closed-ended units within the LIC.
You need a buyer to see the value of the LIC.
Most people today will just buy the ETF which is opened-ended and doesn't have the liquidity/discount to NAV issues.
Ideally, all the investors of LICs which trade under NAV band together to force the manager to liquidate the shares within LIC and return the proceeds to the shareholders.
Most people today will just buy the ETF which is opened-ended and doesn't have the liquidity/discount to NAV issues.
That is not true. It is because there is a market maker and also liquidity of underlying assets.
Ideally, all the investors of LICs which trade under NAV band together to force the manager to liquidate the shares within LIC and return the proceeds to the shareholders
In the UK there is usually unit holder votes
But why would you when I made 150% in a year on LICs because people were a bit scared. It went from 40% discount to 40% premium. I like picking up LICs at 40% discounts that narrow. Literally free money.
Which LICs in Australia have market makers?
Also which are trading at 40% premium to NAV?
Also which are trading at 40% premium to NAV?
Doesn't need to be in the Australian LIC universe does it given you've got global trading opportunities now.
Which LICs in Australia have market makers?
No point in talking to you if you don't understand the difference. There is no market makers because it is closed end. That is the point in having perpetual capital. Look at Berkshire Hathaway. It is because Australians don't understand LICs. I invest in some and not others.
@netjock: my bad, I thought you said that LICs have a market maker.
But my question remains, which LICs are trading at a 40% premium?
But my question remains, which LICs are trading at a 40% premium?
Can't help you with that one but I can assure you there is one in my portfolio.
There is also ones on 37% discount to NAV which I am slowing moving money into. Imagine making 30% when discount to NAV closes.
It is like buying undervalue shares because people give up on it.
It is like getting rich slow vs getting rich fast.
@dtc: LOL but that is 1 LIC. Diversified portfolio of overs and unders just like index ETFs etc.
Like I picked my 150% winner above. I also have a China LIC that is -60%
As usual in here a whole lot of responses and only a few who provide proper info - @netjock has done that.
LIC's used to be big, not so much now ETFs have developed further as they'll be in on the same underlying investments but the mgt fee is lower with ETFs.
The smoothing of dividends is a key thing for some - the other differences are generally you will have a degree of active fund mgt with most LICs, but this tends to be a negative when looked at historically vs market weighting/index.
Also a few LICs have the option to delay CGT until the equity is sold, makes it appealing if bought for a child etc.
They have got active ETFs now too. So the big ETF providers want another bite of the cherry.
ETFs are good when you are looking at large efficient markets (S&P500, global stock index, consumer staples, consumer discretionary, health care, top 100 stock
There is also LICs that pay no dividends (reinvest earnings) which will give your kids a leg up because any income that is no employment over $416 a year is taxed at 66%
I have a small part of my portfolio in WAM Capital - it's a small cap fund run by Wilson Asset Management. "The WAM Capital Limited investment portfolio increased 26.4% in the financial year, outperforming the S&P / ASX Small Ordinaries Accumulation Index by 17.1% and the S&P/ ASX All Ordinaries Accumulation Index by 13.9%" - taken from their newsletter 29.08.24. While the unit value hasn't done anything dramatic, the returns mean they pay a reasonable dividend which is 60% franked.
Previously have held Thorney Tech (no dividends but the unit price did good things) and Thorney Opportunities (value flat but nice dividends). Really depends on the asset class you're invested in. Probs ETF / Index funds overall would do better / be cheaper whatever but I like the hands-on management aspect, and Geoff Wilson has been in the game a long long time. Just have to be careful that you're not duplicating any of your individually held shares inside these types of product.A single year result isn't overly meaningful - oddly WAM's website claims their 5yr return is 10%pa. But Sharesight's share checked says they've returned 4.94% (-5.4%CG, 8.7%DIV) over that same period. So the Sharesight ones do NOT include franking credits, which I suspect WAM have used to bolster their figures (bit sus as they didn't state this next to the results on their site).
Compared against a super basic ETF portfolio over 5yrs - VGS 60%, VAS 40%. VGS 12.65% pa, VAS 8.24% pa. So around 11% overall - utterly destroying WAM's ~5%. Thats not including franking credits. If you did include them I suspect it's still ~14% vs 10% - and the VGS/VAS approach has a lot more diversification both through holdings and also FX exposure.
Compared against a super basic ETF portfolio over 5yrs - VGS 60%, VAS 40%. VGS 12.65% pa, VAS 8.24% pa. So around 11% overall - utterly destroying WAM's ~5%
VGS is global and WAM isn't.
You need to pick your benchmark, some LICs use dodgy benchmarks
But you also need to compare the dividends and what happens if the dividends are reinvested.
Don't forget with the profit reserve there is a cash drag but it is safety of being able to sleep at night for retirees who need cashflow for retirement
VGS is global and WAM isn't.
Yes, very much understood - but as stated for most investors it's a negative to have too much exposure to the domestic market - as they already likely have all their other assets in AUD and here e.g house, savings.To be fair to @miwahni it's unfair of me to include VGS as he never implied WAM was his sole AU market exposure - so my bad. But take whichever Aussie ETF you like A200, VAS or IOZ etc - I think all of them would come up well against WAM when you compare apples with apples i.e ensure the results are either inclusive or exclusive of franking credits for both.
But you also need to compare the dividends and what happens if the dividends are reinvested.
Why do you say this? I'd only consider this valid if there's a discount given for dividend reinvestment, which it seems WAM can do at directors discretion - otherwise reinvestment is just a general investment strategy that applies equally to any equity.Again this is an active fund - and the stats on these funds being unable to outperform their simple indexed cousins is pretty well documented - hence kind of laughable they (WAM) charge these fees:
WAM Capital charges a 1% annual management fee and also 20% of the outperformance of the S&P/ASX All Ordinaries Accumulatio Index, if it outperforms.
No.