Buy Hold Sell: 3 LICs at a premium and 2 at a discount

Buy Hold Sell

Livewire Markets

While the listed investment company (LIC) sector has grown 32% during the past financial year, underperforming LICs - particularly those that persistently trade at a discount to their net tangible assets (NTA) - remain in the spotlight. 

According to data from Morningstar (as of June 30), 64 of the 100 ASX-listed LICs that they track trade at a discount to NTA post-tax (pre-tax this number shoots to 80), with the average LIC on their list trading at a discount of -4.4%

In fact, Morningstar found that over the past financial year, 12 of these listed investment vehicles have either shifted into a different structure or have been wound down. 

In this episode of Buy Hold Sell, Livewire's Bella Kidman was joined by VFS Group's James Whelan and Stockspot's Chris Brycki for a look at some of the best and worst that LICs have to offer. These include LICs from the Wilson Asset Management stable, as well as Regal, Plato, VGI Partners and Antipodes. 

It seems there is a LIC for everyone ... or is there? 

**The below video has been replaced with an edited version. We have removed the previously incorrect statements on VG1's performance, and have replaced the chart and stock codes with the correct ones. We apologise for any inconvenience this has caused.**

Note: This episode was filmed using Zoom on the 22nd of July 2021. You can watch or read an edited transcript below.

Edited Transcript

Bella Kidman: Welcome to Buy Hold Sell brought to you by Livewire Markets. My name is Bella Kidman, and welcome to our first ever LIC special. Today we're diving into the world of listed investment companies. Recently, Geoff Wilson, the king of LICs, waged war on the under-performers by launching his new fund with the ticket code WAR, hence the war pun, which aims to take over companies trading below NTA. So, today we've invited James Whelan from VFS Group and Chris Brycki from Stockspot to chat about two under-performing LICs, and three of the sector's best.

Chris, I'll start with you. We'll keep the Geoff Wilson theme running here. First up, we have WAM Capital, currently trading at a 19.2% premium to NTA. Buy, hold or sell?

WAM Capital (ASX:WAM)

Chris Brycki (SELL): Bella, for me it's a sell. I've got no idea why it trades at such a premium because it's underperformed the index over three years, over five years and over seven years. It's been in the bottom quartile for most of that period. Actually, most of its out-performance came 10 plus years ago, which is pretty typical of value tilted managers in Australia. It's more volatile than the index and you're not compensated with better returns. I think for me, the worst part about this fund is that it doesn't have a high watermark, and so the fund manager is actually motivated to take big swings because if they have big underperformance it doesn't matter and if they have big out-performance they get to pay themselves. So, I'd avoid it.

Bella Kidman: James, it's been somewhat of a good performer down around 3.5% over the last six months, but you cannot argue with the 7% dividend yield. Buy, hold or sell?

James Whelan (HOLD): The dividend yield is pretty good, so if you hold it, keep on holding it, but if you don't hold it you might not want to stick into it. It's a hold for me on that one. Chris really summed it up beautifully and he swung me around. I was a buy until a few seconds ago, so Chris got me on that one. But Geoff is an amazing manager. If you have it, hold it, and don't get rid of it.

Regal Funds Management (ASX:RF1)

Bella Kidman: Okay, James, sticking with you, next up we've got Regal Funds Management (ticket code RF1) run by none other than Phil King. Trading at a 15% premium to NTA. Buy, hold or sell?

James Whelan (BUY): Really quickly, and I'll tell you why it's a buy for me. It's a fantastic price. They just paid out a distribution at about 20% or something just on the profits that they've made. Really quick anecdote. When they went IPO, I looked Phil in the eye at the roadshow and I said, "Why are you doing this?" And he looked me back and he said, "Mate, I'm doing this so that I can be the best in the market. I'm doing this so that I can beat the other guy." The drive from that team is sensational. It's a beautiful long/short fund and they've got some great ideas, and I'd say it's a buy.

Bella Kidman: He is the king. Chris, RF1 up over 67% in the last 12 months. Stunning performance compared to the 23% benchmark. Is this LIC looking regal to you? Buy, hold or sell?

Chris Brycki (SELL): It's the same as Wilson. Fantastic management team. Well known fund manager. I'd be a buyer of both their businesses. But again, with this one, I'd be a seller of the fund. I think, even though the returns have been fabulous over the last year, any fund that charges a 1.5% per year fee and 20% performance fee, and at least this one does have a high watermark, it's just going to be very difficult over the long run to actually get great risk-adjusted returns. So yeah, for me, any fund that charges like that, I'd avoid.

Plato Income Maximiser (ASX:PL8)

Bella Kidman: Chris, our final outperformer in the LIC space is the Plato Income Maximizer. All the best and biggest equity income providers on the ASX. Buy, hold or sell?

Chris Brycki (SELL): Bella, it may not surprise you, but it's a sell from me. So actually, if you look at the top 10 holdings of this fund, it's actually very similar to what you get in a dividend themed ETF. The main difference being you pay eight times as much to get access to this active fund. Yeah, they try and exploit these tax inefficiencies and use some quantitative models, but it really has higher turnover compared to a passive model and therefore it creates a bit of a tax hurdle that you have to get over as well. I think it's really popular with especially retirees because it pays that monthly fully franked dividend, but I don't think dividend chasing is a smart strategy. You've got to look at a total return basis. And for me, it's an avoid. Just use an index dividend-focused ETF instead.

Bella Kidman: James, it's trading at a 14.5% premium to NTA, but they are up 25% in the last 12 months. Buy, hold or sell?

James Whelan (BUY): It's a buy if you're the right investor. If you need monthly income then these are the guys to go for it. It's a good mix of Australian stocks. It's probably a good replacement for having maybe the top 200 or something in there, with that yield involved as well. So, it's a buy from me.

VGI Partners Global Investments (ASX:VG1)

Bella Kidman: Okay. Well, we've been through the best, now let's move to some of the laggards. First up, we have VGI partners, it's trading at a 7% discount to NTA. James, buy, hold or sell?

James Whelan (BUY): Rob Luciano is a gun manager and the VGI team are sensational. I like their products and I love what they do. It's a buy for me, and I think they've got a really good long/short fund and a really good assessment in the way of picking out stocks that you may not think about. And it's a good way of doing it. It definitely saves you the hassle of going out and doing it yourself, and it's a buy.

Bella Kidman: Chris, VGI was actually one LIC that Geoff Wilson said he's had his eye on. So, do you think that VGI can pick up on performance? Buy, hold or sell?

Chris Brycki (SELL): For me, it's another sell. Again, an expensive fund charging 1.5% and a 15% performance fee. So again, regardless of how smart the manager is, it's just something you can avoid and own the index instead.

Antipodes Global (ASX:APL) 

Bella Kidman: Okay. Chris, I'm crossing my fingers that I've got one for you here. Our final underperformer for today is Antipodes Global. They're trading at a 9.5% discount to NTA. But surprisingly, the share price is up around 19% over the last 12 months. Buy, hold or sell?

Chris Brycki (SELL): This was probably not the right one to hang your hat on hoping that I'll give my recommendation for it, Bella. It's another sell. In fact, it's probably one of the higher conviction sells, I would say. It's had horrible performance of about 4% a year over the last three years. Huge underperformance versus the index, 1.1% fees and a 15% performance fee. Avoid.

Bella Kidman: James, everyone loves a discount. We all like to see that we're getting a good deal. Is Antipodes Global a good deal? Buy, hold or sell?

James Whelan (SELL): I think it's a discount for a reason there, Bella. It's a sell for me as well. I don't really see what they do that's superstar amazing or different from anything. If I invest in a LIC I like it to be for a real reason because there's some out-performance, or some benefits, or some sort of strategic advantage. I don't really see that they've got it, and it's going to have to be a sell from me.

Bella Kidman: Well, it may not be a warzone, but the LIC space is pretty intense. Whether you're looking for a discount or fishing for the best of the best, there's something regal out there for everyone... Except Chris!

What LIC are you backing? 

Are there any listed investment companies or trusts that you are loving in your portfolio? Or do you agree with Chris that passive ETFs are the best way to go? Let us know in the comments section below. 

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