Don’t fall in love with LICs

In 2010 I had a very large percentage of my portfolio in Listed Investment Companies (LICs). Stock markets had already had a huge bounce from the financial crisis lows yet some LICs surprisingly still traded at very large discounts to NTA. MFF & TGG spring to mind as these traded at discounts to NTA in the order of 20-25%. The Wilson asset management funds the same or even larger. MFF & TGG appealingly had portfolios of large multinational companies on undemanding multiples listed in major exchanges in the world, unhedged at a time when the AUD was very overvalued. It was almost like paying 75 cents and receiving a $1 instantly. HHV also was at a big discount although their portfolio was not as clean.
I bring this up as I noticed TGG and HHV seeing bigger discounts of late. I remember selling both stocks very close to NTA (less than 5% and TGG may have even been at a premium). Once they get close to the NTA or premiums it is normally far too tempting for them to conduct a capital raising and boost the AUM fees so it is wise not to fall in love with them. This occurred with TGG and HHV on more than one occasion. Now these recently have seen discounts again nearing 15%. Not yet tempting enough for me to buy as the underlying holdings I am also not as bullish yet, however I’ve began to watch them a little closer. I know WAM is a major holder in both and likely to pressure for more active stock buybacks and larger franked dividends. If the AUD rises again to recent highs in the high 70s and these discounts further widen they may soon appeal to gain some offshore exposure.

Another quick example to highlight the fickle nature of these vehicles is TOP. Early December it amazingly traded at a 7% premium to NTA. Their investments have done very well since yet this week traded at an 11% discount. In other words you could have bought TOP back then, patted yourself on the back with regards to the underlying portfolio rising by about 6%, yet be down 11% on your investment!

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