2017 – A big year for LICs
Independent Investment Research continually puts out some of the better Australian focussed LIC research that I can find. Recently, they released an interesting overview of the LIC market in 2017, and I thought I would share some of the key points from the report here.
Source: Independent Investment Research
2017 saw what was, in my opinion, an excessive amount of listings for new LICs, with 14 new issues raising a staggering $4.2b over the year. As can be seen above, this is a huge maount more than FY16 and FY15, both of which were still strong years for issuance.
2017 also saw some very big individual raisings, with Magellan leading the way with a staggering $1.5b raised. Not bad for a manager that has struggled recently. What I will say is that a few new raisings in the international space should be encouraged, with a broader variety of strategies (and improved LIC offerings from existing strategies) certainly welcome.
SMSF demand for yield continues unabated.
Another interesting thing we saw in 2017 was a number of listings with stated yield targets. These funds are seeing strong demand primarily from retail investors which are yield hungry and yield focussed – often to the extent where the headline yield is the only investment consideration.
Having said that, some of these products are certainly interesting and may be useful for some investors. In particular, Metrics Credit Partners’ Master Income Trust is certainly a fund that broadens the LIC universe.
LIC Options – Just say no.
LIC options are a huge bugbear of mine. Unsophisticated investors assume they are getting something for free, which of course is not true. Pleasingly, LIC options became less prevalent in 2017. Another interesting development we saw during the year was VGI offering to cover the listing costs in order to ensure an NTA close to the issue price for investors, which is certainly more investor friendly than usual. Whether or not the way the structured this was a good idea is another matter. Investors should certainly do their own research.
Increasing investor interest driving NTA premiums higher?
Anecdotally, 2017 felt like a year where premiums increased slightly overall, certainly for “blue chip” LICs. Increased investor interest in the sector has seen fewer attractive opportunities from a discount stand point, although they have appeared for patient investors. This may also be a result of increasing activism in the sector. Personally, I hope that this continues and that some of these sub scale LICs with large cost bases can become more shareholder friendly.
Lastly – a great article for those considering LICs in 2018.
Humourous, and also important. Thanks Steve!
Seriously, click it.