We have now completed the first quarter of FY2020 and of LMIs tracked by IIR the Small Cap focused LICs were the standout. The Small Cap focused LICs managed to return an average of 7.6% during the September 2019 quarter. This is more than double the performance of the S&P/ASX Small Ordinaries Accumulation Index which returned 3.1% for the quarter. The aforementioned Small Cap benchmark also outperformed the ASX large benchmark. This was a reverse of a trend where we have seen large cap generally outperform small cap for most of the last 3 years and especially in the 12 months up to June 30 2019.

The standout manager by a long shot was NAOS. Its three LICs produced stellar portfolio returns for the quarter. These returns helped recover some of the under performance the NAOS group of LICs has experienced in more recent times. To recap the portfolio performance of the three NAOS LICs NAOS Small Cap Opportunities Company (ASX:NSC) returned 25.7% for the quarter, NAOS Emerging Opportunities Company (ASX:NCC) returned 17.0% for the quarter and NAOS Ex-50 Opportunities Company (ASX:NAC) returned 13.9% for quarter. All three comfortably beat the benchmark and majority of their peers in their benchmark. We don’t cover the NAOS LICs and so do not publish ratings for them. Of the small cap focused LICs in our coverage, the four best performers were Westoz Investment Company (ASX:WIC) up 10.5% (Recommended), WAM Research (ASX:WAX) up 9.5% (Highly Recommended), WAM Microcap (ASX:WMI) up 9.0% (Recommended Plus) and Barrack St Investments (ASX:BST) up 9.0% (Recommended).

The outlier on the other side of the scales in the small cap group was (ASX:GC1) it returned -1.0% for the quarter. This lagged the benchmark and in a quarter where active LIC & LIT managers produced both solid absolute and relative performance it lagged badly behind peers. Indeed GC1 was the only LIC out of the 25 LIC/LIT in our Small Cap group to record a negative absolute return for the quarter. Indeed on a longer time frame GC1 is lagging both the benchmark and peers on both a 1 year and 3 year time frame.

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Adrian Lobo

"Two Cordish Dixon Private Equity Funds to Wind Up" - actually 90% of voting shareholders in CD1 and CD2 voted against the wind-up at big discounts to NTA. Looks like they figured if the exit price wasn't worthwhile to Cordish Private Ventures then they'd be suckers to take it. Especially as your report has 5yr NTA returns of 17.7% and 14.6%. CD1 has paid 126.5c of distributions since 2016 with about $1.93 to go. So the exit offer of ~$1.66 was pathetic. It was a huge discount on the NTA and that's assuming no NTA growth ever again!

Ric Curnow

Hi Peter. I enjoy reading your reports. I'd like to know about the average discount to NTA at which LICs are trading. Does anyone publish this or related figures? Thanks. Cheers ric

Tom Lonergan

I think you will find the reason for the increase in price of nsc is a concerted buy-back" by NAOS.

Alan Johnston

Hi Peter, thanks for the report. One query re this, difference between Recommended and Recommended +? Is the + designator higher than "Highly recommended" or is the the 2nd level, ie Recommended/Recommended +/Highly recommended? Many thanks, AlanJ

Peter Rae

In response to some questions/comments below - and apologies for the delay: Cordish Dixon: Yes, the proposals to wind up were soundly defeated. We discuss this in the latest monthly. NTA: We publish 3 year average NTA for each LIC in the tables in our Monthly report. We don't publish an average for the sector and I'm not aware of anyone who does. NSC: Yes, they do have a buy-back in place. Buy-backs can help support the share price but this is not always the case. Ratings: Recommended+ is the next step above Recommended with Highly Recommended being our highest rating. Regards, Peter