104 years, countless cycles: Why Australia's oldest LIC still believes in the Lucky Country

On 21 March 1923, a young Sydney financier by the name of A.S. White founded Whitefield Limited, the investment company now known as Whitefield Industrials (ASX: WHF).

It was a very different Australia. The country had a population of approximately 5.7 million, radio broadcasting was in its infancy, motor vehicles were still a relative novelty, and the local share market bore little resemblance to the financial and resources powerhouse it is today.

Few could have imagined the technological revolutions that would follow, let alone artificial intelligence, robotics or companies worth trillions of dollars.

Yet, through the Great Depression, World War II, countless recessions, inflationary shocks, technological breakthroughs and market crashes, Whitefield has continued investing in the promise of Australia and the growth of its industries.

As Australia's oldest LIC enters its 104th financial year, its storied history provides a valuable lens through which to view today's increasingly uncertain markets.

I recently sat down with Managing Director Angus Gluskie to discuss what more than a century of investing can teach us about today's markets, where he's finding opportunities, and why he remains optimistic about the Lucky Country.

From trading floors to digital markets and robots

Since Whitefield received its hand-signed certificate of incorporation in 1923, the world has undergone extraordinary technological change, from mass production and motorisation to television, computing and today's digital markets.

So I asked Gluskie which innovations he believes could prove equally transformative for investors over the coming decades. He identifies two:

1. The emergence of mobile robotics
2. The extraordinary growth in computing power and data availability

The former could create an entirely new workforce capable of operating across multiple industries, while the latter could dramatically accelerate innovation.

"I think that change is profound," Gluskie says.

"It's going to increase the rate with which innovation occurs because people can access, contrast, assess information, inform new decisions, create new inventions with a much greater rapidity than we've seen before."

Importantly, Gluskie believes the benefits will extend well beyond technology companies, with businesses across financial services, healthcare, telecommunications and other industries potentially benefiting from AI-driven productivity improvements and cost savings.

"I believe over time it will help people deliver services better and provide some level of cost savings. And in fact, some of the organisations across that non-resources segments of the market could be big beneficiaries of the cost-outs that AI delivers."

Markets change, but human psychology doesn't

"One of the things that has always been there and we believe will persist is just the fact that investors are herd animals and they behave like a pack," he says.

This herd mentality can drive share prices well beyond what fundamentals justify, whether investors become excessively optimistic or pessimistic, and Gluskie believes we're seeing elements of the latter today.

"We've got geopolitical threats out there, concerns about conflict, about inflation, about rising oil prices and interest rates, and that fearfulness is starting to creep into the investor psychology."

However, he cautions against assuming today's pessimism will persist.

"Ultimately it's worth remembering that if we do see some of those drivers of the fear remediated such as a resolution in the Middle East, then you're going to see a lot of the factors flip around."

In that scenario, Gluskie believes investors would reassess their concerns, potentially triggering a significant improvement in sentiment.

Why CBA and the banks remain core holdings

One of the more interesting aspects of Whitefield's portfolio is its substantial exposure to Commonwealth Bank (ASX: CBA), which accounts for nearly 15% of its holdings, while the Big Four banks collectively represent approximately 30%.

While some investors have questioned CBA's lofty valuation, Gluskie believes its premium to other banks reflects the quality and resilience of its franchise.

"The rationale for that differential is the quality of the CBA business or the franchise ... that differential in terms of quality and in terms of the P/E ratio has existed for many years."

Despite growing pessimism towards the banks following recent Budget changes and rising interest rates, which threaten to weigh on lending growth, Gluskie remains optimistic about the sector's longer-term prospects.

His conviction rests on three structural advantages that have underpinned Australia's banking sector for decades: population growth, relative affluence and economic stability.

"On a medium and longer term basis, we think the banking sector's a really important and resilient part of the overall market and quite a good place for investors to position money."

"If you think about it, it's a sector that's closely tied to some of the big drivers of the Australian market, which are population growth, relative affluence, and it's supported by the relative security and political stability of the Australian economy."

Why Whitefield is moving to quarterly dividends

Our recent Livewire Retirement Series survey, which attracted over 1,400 responses, highlighted strong interest in LICs for regular, fully franked income.

That makes Whitefield's decision to move from half-yearly to quarterly dividends particularly timely, with its recently announced dividend representing an annualised grossed-up yield of approximately 6.4%.

"We generate reasonably consistent income across a year, and it does provide us with the capability to be able to pay those dividends to investors on a quarterly basis," Gluskie explains.

But what about sustainability, particularly given recent concerns surrounding dividend reserves at other LICs?

Gluskie says Whitefield's century-long history has allowed it to accumulate substantial reserves, providing flexibility to maintain distributions through different market conditions.

Unlike LICs that distribute more variable amounts of realised profits, Whitefield largely pays dividends from recurring investment income, supplemented by a modest amount of realised capital gains.

"Given we're 104 years old, we do have quite a high level of reserves ... we've chosen an alternative path, which is to try and be as consistent as possible in our dividend payments."

A century of prosperity - and what comes next

Looking back at Australia's transformation since 1923, I wanted to finish our conversation with a simple question: After 104 years of booms, busts and economic upheaval, is Gluskie optimistic or pessimistic about the Lucky Country?

"I'm definitely an optimist," he says.

"One thing that looking back over a hundred years does for us is that we see all the different cycles that have occurred, and we can see that there are periods where people get very pessimistic about the outlook."

"However, economies, humans, society has a will to get through and solve those problems, and they eventually do."

Beyond history, Gluskie points to three enduring advantages underpinning Australia's investment appeal: relative affluence, population growth and national stability.

"So it's those things that I look at when I say to myself, 'Okay, am I happy to be an investor in this economy over future years?' I think, yes, I think it's going to be a pretty good place to invest."

Watch the full interview