We are now a good way through putting the initial Affluence Investment Fund portfolio in place. It is, I must confess, an inefficient process. Mostly because a number of investment funds we invest in, like us, only accept applications monthly. The impact of this is that we are tending to carry more cash than usual. This worked well for us in August and September as markets corrected. But in October, we gave some of that back as we saw the biggest surge in stock market values in 4 years. Nonetheless a 0.9% increase in wealth, while carrying over 50% of the Fund in cash, was hardly a disaster. If we could do that every month, we expect everybody would be pretty happy.
The market has been kind to us recently, correcting nicely over the 6 month period from April to September and remaining at fair value for long enough for us to get the initial portfolio largely set. We saw a further small market downturn in early November, but the scene now appears set for some sort of Santa rally into the end of the year. During October we made a number of new investments. These included the Wentworth Williamson Fund, Pengana Global Resources Fund and a number of listed investment companies. If you would like to know more about the Fund’s initial portfolio, read this article.
Interestingly, of all the investments we have reviewed over the past 12 months, it is the Listed Investment Companies (or LIC’s) that have proven the most exciting. That is mainly because the sector is already brimming with offers from very good managers, with more coming on board all the time. However, market pricing in this sector is very inefficient with almost all LICs trading at a price different to their underlying net asset value. This, combined with the number of new offers hitting the market and a lack of quality research, is giving rise to opportunities to pick up many LICs at 10% or greater discounts to the value of the underlying stocks they hold. Much of the time, these discounts occur as a result of small post listing hangovers – where quality companies get slightly overwhelmed by early sellers with limited buying support for a time.
We believe the LIC sector represents a significant opportunity for smaller investors and we are now well advanced on putting together a guide to LICs, explaining how we go about analysing companies in this area and the key areas we feel you should focus on. They are probably not what you think. Keep an eye out for the guide in your inbox before Christmas.
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