Australian (ASX) Stock Market Forum

ARG - Argo Investments

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Muschu said:
Yesterday was a very poor day for ARG.. 12 month low. AFI and MLT fared much better.

Can't just be due to the resources holdings within ARG surely? Similar funds hold them as well.

Any thoughts?
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It's probably a liquidity thing.

ARG is pretty much an index tracker isn't it? that ASX is at 12 months lows...

Unsure of its direct exposure to resources but yes if it slightly more heavily weighted towards the resource sectorn when compared to AFI or MLT it will under perform...
 
Muschu said:
Yesterday was a very poor day for ARG.. 12 month low. AFI and MLT fared much better.

Can't just be due to the resources holdings within ARG surely? Similar funds hold them as well.

Any thoughts?
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ARG has recently been trading at a significantly higher premium to NTA than the other two big LICs (AFI and MLT) and its value was looking out of whack compared to those two and historically (I certainly wouldn't have been touching it at the premium it was at). The recent drop has brought it back to a more reasonable difference.
 
ARG went XD today with a dividend of 15c and is currently down about 17c - which is roughly what I would expect.

On the other hand MLT also went XD with a dividend of 8.7c but is down 21c.

My impression has been that long term holders prefer ARG but the discrepancy here is interesting.

Any thoughts on this?
 
Another LIC, (been around for a while, long term value investor, large FUM, low MER) has reported Half Year results. Their broad portfolio generally matched the index. Paying 16c FF dividend. Comments reflect the usual, decline of the banks and other macro issues. Macquarie and CSL are now #1 and #2 holdings.

New purchases include topping up Amcor, CTD, DOW, FFH, RHC, Rural Funds, Tassal. AP Eagers is there as takeover of AHG, sold all of Incitec Pivot, some MLT , NUF plus Dulux taken over.
 
Thank you.

I saw the email from the share registry advising the dividend remained at 16c. Didn't bother with opening it before deleting or even read the half-yearly report.
 
Due to the extreme levels of share market volatility currently, Argo Investments Limited (ASX code: ARG) will announce an end of week estimate of its net tangible asset (NTA) backing per share to the Australian Securities Exchange (ASX) for the foreseeable future.

As at the close of business on 20 March 2020, Argo's NTA per share (after all costs, including tax payable) was $6.02.

trading around that level today

 
as a LIC the sum of its bits was above what it was trading at on COB 23/3. Like most companies, its going to be a timing issue if wanting to buy in

upload_2020-3-25_10-42-21.png
 
where pessimism meets realism:

ARGO Investments, with assets of $5.3 billion and no debt, announces a full year profit of $199.5 million and a fully franked final dividend of 14.0 cents per share.

Profit was significantly impacted by COVID-19 effects, with dividends being deferred, cancelled or cut (often substantially) by numerous companies in the investment portfolio, with NAB, ANZ and Westpac having the largest negative impacts on Argo’s dividend income.

The full year dividends of 30.0 cents per share fully franked are down -9.1% on the previous year. In light of the uncertain economic outlook, Argo’s Board considered it prudent to lower the final dividend to ensure Argo is positioned to weather a potentially protracted downturn with minimal volatility of dividends paid over time.

The full year dividends represent a fully franked dividend yield of 4.1% based on Argo’s closing share price on 31 July 2020 of $7.39 per share.

INVESTMENT PORTFOLIO
In an extraordinary year for the share market, a majority of sectors posted negative returns, with bank stocks among the worst performers. Ongoing industry-specific headwinds and broad exposure to Australia’s rapidly weakening economy weighed on the banking sector. As a result, Argo’s portfolio exposure to the banks has fallen from 17.4% to 13.8% and remains underweight relative to the broader Australian share market.

During the financial year, Argo purchased $243 million of long-term investments which included adding to new positions. Over the same period, Argo received $127 million from sales and takeovers of long-term investments. The larger movements in the portfolio were:

Purchases
AP Eagers (Automotive Holdings takeover)
Downer EDI
Freedom Foods Group
Oil Search
Ramsay Health Care
Suncorp Group
Treasury Wines * (new position

Sales
AMP
Ansell
Automotive Holdings Group (AP Eagers takeover) **
Corporate Travel Management **
Dulux Group (Nippon Paint takeover) **
Milton Corporation
Nufarm **
** Fully exited position and removed from portfolio.

Together with other stocks exited, the total number of stocks in Argo’s investment portfolio decreased from 95 to 89.
 
Seems ARG is slowly exiting MLT.

Previous final dividend of 17c included 4c LIC Capital Gain whereas this one doesn't include any.

Expecting a subdued environment to say the least. I notice in the media release it used the example of CBA reducing its final dividend by 58%. Going to be interesting quarterly distributions from VAS and others. We'll find that out in late September.
 
strip away the jingoism, and the notion of 'picking winners', Jason Beddow has had a few words to say on what may happen, or at least where, as a value based and long term investment manager, they might put client money

The Morrison government's proposed push on Australian manufacturing, which is expected to form part of next week's federal budget, has elicited an optimistic reception from investors who agree it's a good idea to enliven businesses struck by COVID-19. Six areas of manufacturing have been identified as the likely focus of “sovereign capability” within 10 years. The sectors are:
- space,
- defence,
- food and beverages,
- clean energy and recycling,
- resources and critical minerals, and
-medical products.

"We have shot ourselves in the foot with our energy policy," said Jason Beddow at Argo Investment Management. "Australia is such a high cost place to do business today." The federal government is working with the states to accelerate the construction of critical energy infrastructure. Such infrastructure was a harder area for equity investors to key into, said Mr Beddow. "There's not that many ways to play it really. CIMIC is listed but it's pretty illiquid and there's some question marks around their corporate governance." Downer and some of the smaller contractors and service providers are possibilities, but they are at the smaller end of the market.

Mr Beddow said he would welcome a return of high-tech, heavily automated manufacturing to Australia but acknowledged that any such move would likely be restricted to niche segments.
"It's hard to see anything on a grand scale that's going to make a lot of economic sense, unfortunately." He is doubtful that supply chain changes will lead to a renewed focus on domestic alternatives: "It might mean for an Australian company that you source from Turkey, China and Vietnam rather than just China perhaps," he said.
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That being so, housing and infrastructure are likely to be some of the key areas to benefit from the imminent budget. Building materials stocks including CSR, James Hardie and Adbri have already started to rally ahead of next week.
"They are an obvious beneficiary from the budget and there's a pretty direct correlation," said Mr Beddow. "If there's more housing starts or more incentives – particularly low interest rates – people will probably buy [or] build more housing. "I don't think that there's a lot of direct effect outside the builders."
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... well, that isn't Innovation Central. Maybe this country doesn't mix grand scale and economic sense well.
 
Given your post and the growing failure of significant allocations of many LIC's holdings to protect capital let alone generate reliable returns; does the LIC industry need to reconsider their "Buy & hold" strategy and look to re-weight their holdings?

Selling down sizable holdings of the banks and financials will trigger significant capital gains. Where do conservative players like ARG and AFIC redeploy to?
 
kenny said:
.... LIC's holdings to protect capital
.... [&] generate reliable returns;
does the LIC industry need to reconsider their "Buy & hold" strategy and look to re-weight their holdings?

Selling down sizable holdings of the banks and financials will trigger significant capital gains. Where do conservative players like ARG and AFIC redeploy to?
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each LIC is different. I think the older LICs, such as ARG, the AFI stable, and Milton (& maybe WAM stable) are different to the newer manager aligned hotshots, which seem to have higher fee structures and often are just listed echoes of unlisted managed funds

ARG states
Company objective
Maximise long-term returns to shareholders through a balance of capital and dividend growth, by investing in a diversified Australian equities portfolio which is actively managed in a tax-aware manner within a low-cost structure.
Investment approach
Extensive research and meetings to identify well-managed businesses in sound industries, with good cash flow and potential dividend growth. Argo buys or adds to holdings when prices compare favourably to long-term valuations.

There isn't an explicit 'capital protection' there, but a set of practices that over time produce positive returns. Don't forget, most market based investments have a 5-7 year timeline. The economic cycle can't be avoided, but risk can be lowered. One aspect, that of a profit reserve, is useful for delivering smoother dividends over time.

The reweight of holdings comes over time. From the ARG website
The selling of investments is relatively rare and generally only occurs due to takeovers or when it is perceived that the long-term value of an investment is compromised by deteriorating industry conditions or other concerns.
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Occasionally a takeover (with CG implications) delivers up a pool of new investment money. It is a far different story to sell down without appearing to be a distressed seller. The tax-aware manner can reflect the fact that parcels were accumulated on the way in (up) and gains allocated to parcels on the way out. And offset against losses, if necessary. Being a longer term holder with low turnover helps minimise tax exposure, by definition

Where is capital redeployed to? Access to IPOs and, especially, rights issues of late. Again, done within the Company objective and through the Investment Approach. The website goes into more detail. https://www.argoinvestments.com.au/investment-process/investment-process

- ( LT HOLD. Since 2005. Added to on occasion. <as part of my barbell approach; solid LT dividend payers managed in the LICs, not much in the middle, then speccies either traded or hoping for Free Carry> )
 
Just to add to @Dona Ferentes's comment, the older LICs, in order to retain the ability to include a Capital Gain Discount in the dividend, is limited in the percentage of it's holdings it can turn over each year (around 10%.)

This would mean in order to wind down its holdings in banks and other sectors is likely to take place over a couple of years.
 
kenny said:
Given your post and the growing failure of significant allocations of many LIC's holdings to protect capital let alone generate reliable returns; does the LIC industry need to reconsider their "Buy & hold" strategy and look to re-weight their holdings?

Selling down sizable holdings of the banks and financials will trigger significant capital gains. Where do conservative players like ARG and AFIC redeploy to?
Click to expand...

A 5 billion dollar domestically focused LIC has very limited investment opportunities, they are big so have to go big.
 
kenny said:
Given your post and the growing failure of significant allocations of many LIC's holdings to protect capital let alone generate reliable returns; does the LIC industry need to reconsider their "Buy & hold" strategy and look to re-weight their holdings?

Selling down sizable holdings of the banks and financials will trigger significant capital gains. Where do conservative players like ARG and AFIC redeploy to?
Click to expand...
I remember someone on here recently criticising AFI for selling down AMP, then criticising them for selling down banks and loading up on cleanaway.
I bought AFI and MLT pre the covid debacle, they are both down about 20c on the purchase price, but both have given two dividends since.
I wish all my dividend plays were performing as well, as it is important to have a dividend when it is a major form of your income.
I guess a lot depends on what stage of life you are in, as to what your investment objectives are and what recovery options you have.
 
sptrawler said:
I remember someone on here recently criticising AFI for selling down AMP, then criticising them for selling down banks and loading up on cleanaway.
I bought AFI and MLT pre the covid debacle, they are both down about 20c on the purchase price, but both have given two dividends since.
I wish all my dividend plays were performing as well, as it is important to have a dividend when it is a major form of your income.
I guess a lot depends on what stage of life you are in, as to what your investment objectives are and what recovery options you have.
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I get your point. For the second half of FY 2019-20 VAS distributions were down around 50% compared with the first half while ARG is down by 12% - and using reserves which ETFs don't have. Then have to bear in mind one has 300 shares and the other less than a 100.

And there is the mix too.

ARG is 15% to Materials whereas VAS is 20%. Real Estate 3% v 7% and so it goes. Probably other older LICs are similar. MIR (comparatively the new little kid on the block) doesn't hold banks although it does have Other Financials.
 
As an aside at least with LICs the record keeping is cleaner than ETFs. The sentence "Please Retain This Statement for Income Tax Purposes" on the annual statement from ETFs doesn't mean only for the relevant tax year. You'll need it if you sell due to the AMIT cost-base adjustments. Can be a bit of a pain if people do a partial sell down through the year but a good accountant will sort it out - hopefully.
 
sptrawler said:
I wish all my dividend plays were performing as well, as it is important to have a dividend when it is a major form of your income.
I guess a lot depends on what stage of life you are in, as to what your investment objectives are and what recovery options you have.
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It would be good to see whether the fund managers had to dip into reserves to maintain the dividend since some of their major holdings (looking at you; banks) dropped recent dividends.

I agree with your comment on investor profile however I would imagine a significant proportion of their shareholder base would be self funded retirees relying on the dividends for passive income. Many will be anxious where they may need to shift to in order to maintain their income without moving up the risk curve.
 
kenny said:
It would be good to see whether the fund managers had to dip into reserves to maintain the dividend since some of their major holdings (looking at you; banks) dropped recent dividends.

I agree with your comment on investor profile however I would imagine a significant proportion of their shareholder base would be self funded retirees relying on the dividends for passive income. Many will be anxious where they may need to shift to in order to maintain their income without moving up the risk curve.
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At least we still kept the franking credits, without them it would be very difficult, many would be going onto a government pension IMO.
 
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