Hi Ellie. At Pinnacle, we have $2.6bn of FUM in LIC/LITs. Some trade at premiums, some at discounts. The fees range from 0.6% to 1.1%, in line with their unlisted managed fund equivalents. Don't forget that the cost of raising LIC capital can be as high as 3%, a cost which is now borne by the manager not the LIC shareholder. This is a very investor friendly market trend that differentiates the Australian LIC market vs likes of US and Canada where the investor still pays for the upfront capital raising costs.
Hi Steve. There are LICs that trade at a premium to NTA but they are rare . One of ours, Pinnacle affiliate's Plato Income Maximiser (PL8) is one such example. Trading at a discount during franking credit uncertainties, it now trades at a premium as shareholders love the fully franked dividend of PL8. They also Love Plato so yes the performance and quality of manager are big drivers of discount/premium to NTA. Discount/Premiums are cyclical and at the moment, the discount to NTA on equity LICs are as wide as they've ever been, even for 'old school' LICs like ARGO and AFIC ( 5% discount), with the majority >10%. We think this is a cyclical low point.
Hi Mr T. Continuation agreements / sunset clauses are an interesting alignment idea. We looked at the precedence of this in Aus and the UK (the other large LIC market) and couldn't find any and thus hard to tell if it works/would work. If you have any examples, let me know. The pros and cons are not clear cut thus would be good to see if it's worked in practice.
Hi David. According to Bell Potter LIC analyst Will Gormley's research, Aus equity LIC's have returned (NTA plus dividends) about 30% over 5 years to end March. With about a 5% average annual dividend yield, you're correct most of the return comes from dividends. When looking at the ASX200 index returns of 7.5% p.a. over the last 5 years, 4.7% of that is from dividends. In other words, it's not only LICs, its the market that hasn't seen much capital return ex dividends
Hi Carlos. Many thanks for the comment. LIC discounts are a big detractor for many investors currently especially with listed equity underlying strategies. We believe this to be near a cyclical low (discounts are cyclical) but agree that as issuers we need to continue improving the alignment with LIC shareholders (much has been done already) and communicating better (LIC investors want more regular insights from the underlying managers) to ensure the future of an industry that provides important investment choices to retail investors.
Thanks for the ongoing LIC sector research Will. Z-score on LIC premiums/discounts and new angle !
Carlos, as Roger says, the point was about some of the misperceptions of ETFs (i.e. that they're all market cap benchmark trackers which they're not)
Hi Mark. Thanks for the interest. Vegemite was a big tongue in cheek and meant represent a proudly Australian product rather than any reference to a type of ETF ! You can get a full list of the ETFs in the market in this link https://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm
Hi Luke. You're right. Our bad, D2O options expired on 31/5 not 31/10 as our table shows. At the time D2O was trading at $1.14 with a $1.10 strike price and thus options worth 4c. Apologies for the error and good spot !
Hi Neil. Options are in the money if the share price the option relates to is higher than the strike price of the option. The share price of the LIC is determined by a number of factors, the most important of which I would say is the market returns of the underlying strategy. Strong markets would thus all else being equal, drive a higher chance of an option being in the money. Chris.