Fund Manager Profile August 2018
Affluence LIC Fund, Fund Updates

Affluence LIC Fund Opens to all Investors

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We are delighted to announce that the Affluence LIC Fund is now open to all investors in Australia and New Zealand. The Fund was previously only available to wholesale investors.

We will be accepting applications for the first time this month. The cut-off date for initial applications is 30th August. We will continue to accept applications and withdrawals every month after that.

More information on the Fund is below, or you can visit the Fund Page to find out more.

Investment Strategy

The Fund is a limited capacity strategy that holds a diversified portfolio of 20 to 35 LICs. The Fund aims to outperform the ASX 200 Accumulation Index over rolling three year periods. Distributions are paid quarterly. The Fund seeks to deliver a minimum cash distribution yield of 5% per annum. The next distribution, for the September 2019 quarter, is expected to be paid in October. Any franking credits received from LIC investments are also passed through to investors at the end of each tax year.

The Fund invests in LICs using three complementary strategies:

  • Alpha Generators – LICs that Affluence believe can outperform the market.
  • Discount Capture – LICs trading at discounts to their NTA.
  • Event Driven – special situations such as IPO’s and other events.

The Discount Capture strategy is a relatively unique feature. Through this strategy, Affluence aims to generate additional returns above the market, by acquiring LICs at larger than average discounts and holding until those discounts narrow.

Why Listed Investment Companies?

Some fantastic investment managers can be accessed through LICs. Investments in LICs most commonly provide exposure to a basket of underlying shares listed on Australian or International stock markets, although there are some specialist LICs that offer exposure to other asset classes. LICs have been available for a long time, but their number has increased substantially in recent times, with many managers launching new LICs.

The biggest positive from our point of view is the potential for LICs to trade at prices below the value of their net tangible assets. In other words, you can buy a dollar of investment value at a discount. Over time, that discount can move higher or lower, or even turn into a premium (where an LIC trades at a price above its NTA). We feel it provides an important opportunity to add value, and it’s a feature unique to LICs.

Despite the large size of the LIC sector, there is relatively limited attention from institutional researchers and professional investment managers. This can provide more opportunities for mispricing than in other areas of the stock market. Through the Affluence LIC Fund, we seek to take advantage of these opportunities.

Importantly, investing in LICs through the Affluence LIC Fund can provide the ability to win in two ways. Firstly, you can access returns from a large and diversified portfolio of LICs chosen by Affluence. Secondly, the Discount Capture and Event Driven strategies can add extra value over time, improving long term returns.

Of course, investing in LICs is not without risk. They can be more volatile and fall more in severe market downturns than other types of investments, although in smaller market corrections they tend to perform better than average. We use several strategies to attempt to manage this volatility. But if you are considering an investment, you should take into account the potential for ups and downs in performance, just as you would for any stock market.

How long has the Fund been going?

As with all our funds, we started the Affluence LIC Fund with our own money over three years ago. We did so because we realised some features in the LIC market made them an attractive investment opportunity. The Fund initially invested on behalf of Affluence staff and the Affluence Investment Fund. It was then opened to wholesale investors in July 2017.

The portfolio currently holds investments in over 30 LICs and some cash.

Why invest in so many different LICs?

There are a wide range of different managers, investment styles and asset classes now available through LICs. By holding a portfolio of 20-35 LICs, the Fund provides substantial diversification, while still having significant allocations to our most favoured LICs at any given time. The returns from such a widely diversified portfolio can also be much less volatile than the stock market.

An essential part of our long-term strategy for the Fund is the active rotation of the LICs in the portfolio. Small and medium sized LICs can produce much better returns than the larger, more established ones. Their prices also tend to move up and down more. By closely monitoring the market prices of LICs, compared to their NTA value, we can spot opportunities to buy or sell LICs that are trading at prices which appear unusually cheap or expensive.

Why is the LIC market attractive now?

Right now, the average level of LIC discounts is very high. Much higher than usual. It’s also unusual that the discount has appeared at a time when the ASX has been going very well. History would suggest that LICs are more likely to trade at a discount when times are tough. This situation may present an attractive opportunity for you to reallocate some of your existing equities exposure towards LICs.

If you would like to know more about why we think the LIC market is attractive now, see our article about it here.

Want to know more?

More detail about the Affluence LIC Fund is available on the Fund Page.

You can also view the Affluence LIC Fund Portfolio. To view the portfolio, you must register as an Affluence Member. You can register online here.

You can also learn about the other Funds we offer.

If you’d like to invest in the Fund, the easiest way is to click the Invest Now link on the top right of our website. This provides a link to the online application facility provided by our investment registrar, Boardroom. Alternatively, you can complete the appropriate paper Application Form. If you are an existing investor with us, please quote your existing investment number when you apply. This will make the application process much easier for you.

If you have any questions regarding the Fund or would like any more information, please send us an email, or give us a call.

Take care and all the best with your investing.

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