Understanding the ASX - LIC to NTA Report

[sluggerdog]

Hi All,

I've got a quick question regarding the report the ASX provide covering the LICS vs NTAs.

e.g. http://www.morningstar.com.au/s/documents/201607_ASX-LIC-NTA-Report.pdf

So from what I can tell ideally it is best to buy LICs when it is trading at a discount to the underlying NTA.

I'm just trying to understand the report, going by the below image are the LICs that are trading at a discount having a negative value in the Prem/Disc Post-Tax NTA % column such as ACQ and ALR hinting they are undervalued and a good buy at the time?



I'm looking to invest into a LIC long term, a set and forget investment. Ideally from what I can tell either AFI or ARG when the time is right. Trying to work that out now.

Thanks

 

[GlobeTrekker]

True, its best to buy an LIC at a discount, but remember that the discount is not the be all and end all. Really you need to look at an LIC's history of discount/premium to make a judgement as to how good the current discount is. Some LICs permanently trade at discount (but at varying sizes of discount), some almost always trade at a premium, and many fluctuate between discount and premium over time (this is the case for the biggest ones - AFI, ARG, MLT, BKI etc). Bell Potter puts out a report which gives you a graph of historical discount/premiums for each LIC over time. Most of the biggest ones seem to be trading pretty close to their NAVs at the moment, so they're not overpriced but not a bargain either.

You should also look at their share price movement and dividend history over time. Also check out what stocks the LICs actually hold (each LIC publishes their top 20 stocks monthly in their company announcements available on the ASX), some (like CIN) hold a high proportion in one particular stock and you need to make sure you're comfortable with that particular stock holding. Some hold higher proportions of stocks in particular industries too (eg ARG holds less of the big 4 banks than the other big ones like AFI).

 

[kid hustlr]

Yes in theory if they have a negative value in the prem/disc column then they are trading at a discount to their NTA.

Good points above though, LIC's trade above and below NTA's for a variety of reason including:

-Level of activity ie passive vs active
-Level of liquidity ie what is their market cap, how much is traded each day
-Historical performance / faith in the management team
-Market outlook/Market sentiment
-Fees
-Other


For me personally I've set a little goal to try and pick up some of the larger LIC's in a buy and hold portoflio over the next few years, High market Cap LIC's which occasionally trade below their historical NTA prem/discount levels should offer a little bit of 'cream' so to speak.

 

[sluggerdog]

Thanks for the information. That is quite helpful. I'll look into this some more.