LICs & ETFs that can't beat the index: Any point?

Dona Ferentes · 20 January 2020

Belli said:
There seems to be a tendency to look at percentages ..... So if you are looking at income in terms of percentages which would an investor prefer? A yield of 6.5% or 1.0%?

Because if you selected 6.5%, you have chosen NAB which paid $1.66 (before franking) in 2019 calendar year. If you chose 1% you have selected CSL which paid $2.65 (no franking) in the same period.

Just throwing it out there as food for thought.

Tying up the thread (it started with a mention of AFI) and looking at trading activity plus dividend forecasts plus positioning for the future, AFI has announced Half Year accounts today. As well as holding dividend steady, the following comments flow from the trimming banks and participating in BHP and Rio buybacks: and repositioning

...holdings have been disposed of where the sustainable competitive advantage of the business has come into question. Over a four-year period, the number of stocks in the portfolio has been reduced from 95 to 70. This has led to a reallocation of funds to preferred companies, generally into larger companies in the ASX 200 Index which have better growth prospects.

The more recent effect of this repositioning when combined with a general upward move in the market has meant that the top 24 largest holdings in the portfolio (excluding the major banks and resources) have risen from 47.2% to 51.4% over the six-month period, and their value has gone from $3.5 billion to $4.1 billion.

It is also worth making some observations on the effect of the change in profile of the portfolio on AFIC’s more immediate income streams. The dividend cuts from three of the four major banks, combined with a reduction in the proportion of our portfolio in financials, has put a short term drag on our dividend income streams as many of our new investments have lower yields. We believe the move to stocks with a better growth profile should enhance the potential for dividend growth in the medium to long term, particularly as bank dividends are expected to remain stagnant.

Frankieplus · 20 January 2020

So_Cynical said:
the equal weight ASX200 ETF has out performed the standard ASX200/300 ETF's by 50% over the last 5 years

I just thought of something, how is there any difference from a profit perspective if the equal weight index out performs the standard weight index? Please excuse the terminology but I will try get my point across.

Using MVW and VAS as an example, over 3 - 10 years they seem to be tracking the same except that MVW share is higher all the way through it's not like MVW is climbing more than VAS over time because it's not. They are climbing and dropping at very similar levels.

So what's the difference in this instance where if you were to buy VAS you would buy it cheaper and later selling cheaper.. If you buy MVW you would pay more and then when you sell you get more.

So is MVW really outperforming VAS or is it just a more expensive stock compared to it?

-Frank

sptrawler · 20 January 2020

Dona Ferentes said:
Tying up the thread (it started with a mention of AFI) and looking at trading activity plus dividend forecasts plus positioning for the future, AFI has announced Half Year accounts today. As well as holding dividend steady, the following comments flow from the trimming banks and participating in BHP and Rio buybacks: and repositioning

I have noticed MLT have trimmed back on the Banks also.

dyna · 20 January 2020

I quite like the local LIC's,especially those that take the hassle out of overseas markets for you. However,I treat them no different to my own share portfolio.Sell a fair bit when they trade above NTA, when the buggers are more likely to hit you with a share issue.Another thing,not mentioned so far,you can rock up to their agm's and investor presentations and put your hand up to query their gun stock pickers,right there,before you, in the room.Learn a lot more from real experts,than even good forums,like this one!

So_Cynical · 20 January 2020

Frankieplus said:
Using MVW and VAS as an example, over 3 - 10 years they seem to be tracking the same except that MVW share is higher all the way through it's not like MVW is climbing more than VAS over time because it's not. They are climbing and dropping at very similar levels.

The big difference and reason for recent outperformance is that an equal weight ETF buys more units of a stock entering the index than a normal index tracker, using ATP as an example, when APT entered the ASX200 it would of been priced at around $7 as the price rose the equal weight ETF will sell down to rebalance the weight, an index fund would simply hold or buy a little at higher prices, the equal weight ETF keeps selling and taking profit as individual stocks rise, buying more of the falling stocks.

MVW behaves more like a managed fund.

N2Seeker · 23 January 2020

Not meaning to hijack this thread, but the question seems topical. I understand what NTA is and how to calculate it. I'm currently mucking around in Commsec reading and working out the functions etc - NTA is one of the few things that doesn't show up that I can locate. If I haven't just missed it, I figure there must be a similar platform or basic piece of software that will do the NTA calcs, or are people just running spreadsheets? Any suitable things I should look at to help me streamline the process a bit?

Belli · 24 January 2020

N2Seeker said:
Not meaning to hijack this thread, but the question seems topical. I understand what NTA is and how to calculate it. I'm currently mucking around in Commsec reading and working out the functions etc - NTA is one of the few things that doesn't show up that I can locate. If I haven't just missed it, I figure there must be a similar platform or basic piece of software that will do the NTA calcs, or are people just running spreadsheets? Any suitable things I should look at to help me streamline the process a bit?

My only suggestions are either the NTA published by various LICs (daily for some, weekly for others or monthly for the older LICs) or possibly the Bell Potter link I posted earlier.

I don't take a great deal of notice of NTA. For the granddaddy ones (AFI, ARG, etc) they tend to swing around a bit - up 5%, down 2% - and anyway when I buy I'm buying at the share price. If one sells that's what you are going to get not the NTA although if the difference is zero you do. My last sale was swapping STW for VAS in 2010 but they are ETFs of course.

Too much effort for me trying to mess around calculating the NTA at a specific point when all I really want is the dividends.

Others have a different approach of course as is their right.

Meant to add. I've got Buy contracts from many years ago. What the NTA was then when I bought them is now irrelevant.

Dona Ferentes · 24 January 2020

I quite like these comments, that play to my preferences. Though there's an emphasis on niche investments, rather than the larger and cheaper options. And more along the LIC versus Managed Fund choice, and I think an ETF falls towards the former:

Some of the arguments against LICs/LITs come from a viewpoint that open-ended managed funds are the best solution for retail investors as they always offer a quick exit at close to the net tangible asset (NTA) calculation. This is fair for the most liquid sectors such as large cap equities or vanilla investment grade bonds.

However, for more illiquid assets such as sub-investment grade debt, private equity, some hedge funds and direct property, history is littered with examples of funds that ran out of cash and locked their investors in. If the assets take substantially longer to sell than the redemption period on the fund, investors and managers are playing with fire.

Given this, unlisted closed ended funds (e.g. direct property syndicates, private equity funds), individual mandates or LICs/LITs are the most appropriate vehicles for illiquid assets. As many retail investors insist on having some form of liquidity, a listed fund is likely to be their best avenue to access these sectors.

Critics of listed funds often point to the higher fees (from listing and governance costs) for these funds compared to their unlisted equivalents. This isn’t always true, with fees running at over 1% per annum for retail investors on some open-ended unlisted funds. It also ignores that higher fees could be more than offset by higher returns as listed funds do not have to hold large cash positions to offset the risk of a run on the fund that open-ended unlisted funds face.

Belli · 24 January 2020

Thread is getting a little messy.

However.

One aspect which is overlooked with some LICs is the tax status for Discounted LIC Capital Gain. The 10% rule can be restrict the disposal of shares.

Nevertheless, for my purposes they are long-term, low cost holdings which are diversified. The managers do what I pay them to do. ETFs? Meh, who cares about a particular company, its management or its prospects. I find that good too for my purposes.

oilleak · 27 March 2020

sptrawler said:
We have been hearing that since 2011, eventually it will be correct.
I know people who have been in cash since 2008, and still are.

The old CRASH came in outta left (or East ) field ......

Hope ya cashed up for some bargains ?

Getting the timing right will be the next thing ..... At this stage I'm thinking July .... but she's a bit of a fluid environment at the moment .

Lots of trades around .

Luck all.

sptrawler · 27 March 2020

oilleak said:
The old CRASH came in outta left (or East ) field ......

Hope ya cashed up for some bargains ?

Getting the timing right will be the next thing ..... At this stage I'm thinking July .... but she's a bit of a fluid environment at the moment .

Lots of trades around .

Luck all.

I always keep a lot in cash, Im very conservative, it was too hard to get the nest egg together to risk losing it.
As you say luck to all, just remeber having a job in times like this, is like winning lottery it is recession proof.

LICs & ETFs that can't beat the index: Any point?

Dona Ferentes

Pengurus pengatur

Frankieplus

sptrawler

dyna

So_Cynical

The Contrarian Averager

N2Seeker

Belli

Dona Ferentes

Pengurus pengatur

Belli

oilleak

sptrawler

Similar threads

LICs & ETFs that can't beat the index: Any point?

Pengurus pengatur

The Contrarian Averager

Pengurus pengatur

Similar threads

Privacy & Transparency

Privacy & Transparency