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

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.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

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.

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.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Latest Updates

Superannuation

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Superannuation

Less than 1% of wealthy families will struggle to pay super tax: study

An ANU study has found that families with at least one super balance over $3 million have average wealth exceeding $19 million - suggesting most are well placed to absorb taxes on unrealised capital gains.   

Superannuation

Are SMSFs getting too much of a free ride?

SMSFs have managed to match, or even outperform, larger super funds despite adopting more conservative investment strategies. This looks at how they've done it - and the potential policy implications.  

Property

A developer's take on Australia's housing issues

Stockland’s development chief discusses supply constraints, government initiatives and the impact of Japanese-owned homebuilders on the industry. He also talks of green shoots in a troubled property market.

Economy

Lessons from 100 years of growing US debt

As the US debt ceiling looms, the usual warnings about a potential crash in bond and equity markets have started to appear. Investors can take confidence from history but should keep an eye on two main indicators.

Investment strategies

Investors might be paying too much for familiarity

US mega-cap tech stocks have dominated recent returns - but is familiarity distorting judgement? Like the Monty Hall problem, investing success often comes from switching when it feels hardest to do so.

Latest from Morningstar

A winning investment strategy sitting right under your nose

How does a strategy built around systematically buying-and-holding a basket of the market's biggest losers perform? It turns out pretty well, so why don't more investors do it?

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.