Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 195

Watch premiums and discounts in LICs

Independent Investment Research (IIR) has released its December Quarter 2016 review of the LIC sector, sometimes called Listed Managed Investments (LMI). A summary of the performance of the 34 LICs included in the Report is presented below. The full paper with more detailed coverage is available here. As this full review is of the previous quarter, investors should check latest prices which may have moved significantly.

Overall equities performance

For the December 2016 quarter, the S&P/ASX200 was up by 5.2% following the US market rally after Trump’s election. Large cap equities, and especially resources stocks, contributed most to this performance. Small caps, down 2.5% for the quarter, still managed an overall gain for the year of 13.2%. For the 12 months to December 2016, the S&P/ASX200 was up 11.8%.

LIC performance

IIR’s analysis uses two different measures. The first is total returns (share price gain or loss plus dividends) which represents the actual return received by shareholders from their investment. The second is pre-tax NTA plus dividends, which is better for evaluating manager performance.

Using this second metric, the best performing fund for the December quarter was Global Master Fund (ASX:GFL) with a 15.5% increase in portfolio value due to a strong share price performance of its core holding, Berkshire Hathaway. As the overall market performed well, so too did the majority of LICs included in the Review. However, some small cap LICs had negative returns.

If using the first metric, Westoz (ASX:WIC) was the best performer for the quarter with an 8.1% total return in share price and dividends due to its resources focus. This reduced the discount to pre-tax NTA from 16.8% at 30 September 2016 to 9.4% at 31 December 2016.

Premiums and discounts

As at 31 December 2016, 12 of the 34 LICs covered were trading at a premium to pre-tax NTA. The largest of these was Mirrabooka Investments (ASX:MIR) at 25.8%, followed by WAM Capital (ASX:WAM) and WAM Research (ASX:WAX), each at 20.7%.

At the other end of the scale, Global Master Fund (ASX:GFL) was trading at the largest discount to pre-tax NTA at 22.3%, widening from 15.8% as at 30 September 2016. Over the past three years, GFL’s discount has averaged 14.4%.

The table below shows the quarterly performance for each of the 34 funds as measured by both metrics mentioned above, along with their premium/discount to pre-tax NTA:

Leisa Bell is Assistant Editor at Cuffelinks.

5 Comments
Graeme
March 23, 2017

One should also be aware that LICs use a number of different ways are used to report their performance to their shareholders. While all LICs publish monthly a pre and post tax NTA, that's where commonality ceases.

At the conservative end of the spectrum, some managers report performance as change in post tax NTA adjusted for dividends paid. This is in my opinion the best measure of the change in value of the long term shareholder’s investment. Other managers will adjust this for tax paid and/or fees paid. Still others will use a portfolio return, again possibly adjusted for fees and taxes. I was surprised that the one year portfolio return (before taxes and fees in the fine print) of over 15% reported by one manager, equated to only a 2% increase in the after tax NTA adjusted for dividends paid.

Portfolio return is undoubtedly a useful method for comparison against a benchmark index, though one has to ensure the benchmark is appropriate. Why one dedicated microcap manager would benchmark against the All-ords index (primarily large banks, miners and retailers) beats me.

Cat Daddy
March 23, 2017

Ashley.

What part did I miss. The article under sub heading LIC performance reads "(share price gain or loss plus dividends)"

Graham Hand
March 23, 2017

Hi CD, good pick up but we changed the previous wording after receiving Ashley's comment. We left his comment after the article as a way to explain one of the headings in the table, which we did not change.

Sceptical
March 23, 2017

Its kind of pointless to even reference the movement in the NTA as the investor into the LIC structure never receives that performance. The assumption that is made is the share price will move according to the movement in the NTA. But the real performance the investor receives is just the performance in the share price (what they bought it for and then what they sell it for/what it is currently trading at) + dividends. The structure itself is flawed and surely will be replaced with active ETFs if more providers come to market to offer choice!

Ashley
March 22, 2017

The table describes returns in terms of “share price including dividends”. Is that different from ‘total returns’ which is a widely understood term? (or even “total returns including dividends”). Share price does not ‘include’ dividends. It should say ‘share price gain/loss plus dividends’, which is the same as total returns.

 

Leave a Comment:

RELATED ARTICLES

Listed Investment Company deals for 2019

Latest LIC and ETF updates

LIC reporting season wrap for 2017

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.