# LIC's - are they worth the premium?



## brianwh (4 February 2010)

I currently hold 3 LIC's - AFI, ARG and MLT - in my SMSF. I bought them on the advice of my ex-financial planner. As I understand it, if I was to buy the same portfolio of shares in any one of them individually, I would buy them 10%-15% cheaper (or I could buy 10%-15% more). I imagine the logic in buying an LIC is to gain exposure to a large spread of shares when you don't have a large amount to invest - but a premium of 15% seems a bit high. Or am I missing something?


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## bilo83 (4 February 2010)

The premium is for the investment manager's ability (or perceived ability) to outperform the market. If you don't think the manager will outperform the market in the future you're be better  off in an ETF which simply tracks the market and trades at or very close to NTA. I thought most LICs traded at a discount to NTA so 15% premium does seem high.


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## brianwh (4 February 2010)

bilo83 said:


> The premium is for the investment manager's ability (or perceived ability) to outperform the market. If you don't think the manager will outperform the market in the future you're be better  off in an ETF which simply tracks the market and trades at or very close to NTA. I thought most LICs traded at a discount to NTA so 15% premium does seem high.




But you can find out what stocks they hold and the proportions in which they are held so why not build your own portfolio based on what they are holding. Also I know that not all LIC's trade at a premium but some of the more highly regarded ones such as Argo do.


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## So_Cynical (4 February 2010)

Some LIC's, well the LIC's i like are very active portfolio managers, trying to go in and out of stocks at the most profitable times, getting overweight in what's hot at the moment and selling down, taking profit....at least trying to beat the index. 

I cant see the point of investing in straight 'buy and hold' type LIC's/funds.


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## gooner (4 February 2010)

brianwh said:


> But you can find out what stocks they hold and the proportions in which they are held so why not build your own portfolio based on what they are holding. Also I know that not all LIC's trade at a premium but some of the more highly regarded ones such as Argo do.




Totally agree

You can also control when you realise profits and thus have a tax event, whereas with LIC's you are at their mercy.  If you are having a really good year income wise, you can bet the LIC will give you lots of taxable profits as well. With your own portfolio, you can realise some taxable profits when your other income is low.


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## Fleeta (4 February 2010)

Check out the discount on WIL....why?


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## venger (30 March 2010)

guess difference in discounts/premiums between LICs may also be due to perception of the quality of fund management?

Older LICs have been around for decades with proven track record.. so does make sense that sometimes ppl are willing to pay more..

having said that, not sure if there is ever a good time to pay $1.10 for something with a market value of $1.00 !


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## Idiode (30 March 2010)

A good subject for this forum brianwh.

Like you, I hold/held LIC's in my Super Fund Portfolio.  I just sold out of most of them after holding some for up to five years.
The intention is to reinvest this into direct shares.

Four issues influenced this decision:
1. My SMSF already held several of stocks that the LIC's also held(duplication).
2. The returns from direct investment in the same shares was better than that from the LIC's because of the added costs (Management Expense Ratio).
3. The share price of the LIC's was always lower than the LIC's valuation.
4. The LIC's always held a reserve in cash. (in effect, duplication of my own cash reserve)

My SMSF still holds some PET which provides an easy avenue of investment in the US market - should it ever recover. (check out the PET portfolio)



Hope this provides some worthwhile input from a like minded SMSF holder.


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## awg (30 March 2010)

So_Cynical said:


> Some LIC's, well the LIC's i like are very active portfolio managers, trying to go in and out of stocks at the most profitable times, getting overweight in what's hot at the moment and selling down, taking profit....at least trying to beat the index.
> 
> I cant see the point of investing in straight 'buy and hold' type LIC's/funds.




Do you know much about Clime Asset Management CAM?

I believe they follow a value investing approach, and also the "parent Company"  CIW, markets a stock valuation model called Stockval (sp?) which is a book and subscriber service.

I skimmed the book once, seemed good, but the fund performance measures dont seem all that electric.

sorry thats the sum total of my knowledge, further illumination would be welcome


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## brianwh (2 April 2010)

I posted along these lines in the ARG stock thread but thought it might be worth giving it a run here

Can anyone explain why the SP for ARG has fallen by about 6% in the March Qtr while funds that track the S&P 200 such as STW have actually risen a % or 2. I know there is a 12 cent dividend which came out, but the SP has fallen a lot more than 12 cents. As I understand it, not only are you paying Management, but there is also a premium to NTA in the price. During last year's half year reporting MD Rob Patterson quoted long term returns of 10.7%. Of course you need a lot more than one quarter to make a judgement.

I hold ARG in my SMSF but am looking for an exit point.


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