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4 responses to “LIC Profile September 2019”

    1. Hi Carmelo, generally we try to use the NTA after realised gains tax but before unrealised gains tax. The exception to this is when we believe there is a reasonable chance the LIC may sell all its holdings and wind up. There have been a number of these examples recently (and we expect there may be some more coming), and if this is the case we would use the after tax NTA as this will be closer to what the net proceeds will be to the investors.

  1. Hi Greg, Daryl,

    On the theme of being “paid to wait,” I noticed that the dividends had not been mentioned. Do you have a view on those and if they’re being paid out of distributions from underlying investments or from cash, or both? Thanks.

    1. Hi Ben,

      What we were trying to get across is that we believe the existing assets in the portfolio will continue to produce positive total returns over the medium term.

      It would be a different proposition if an investment was trading at a 30% discount, but we did not expect the underlying assets to make money. Under this scenario, if a reduction in discount never occurred, than there is no other way to profit.

      For the BAF portfolio, as per their most recent report the underlying portfolio has returned circa 5% over the past 12 months, 7% over 3 years and a little higher since inception. Of course these assets could fall for a variety of reasons and produce negative returns, but over a reasonable time frame we believe they should provide positive returns. So for BAF, even if the discount stayed at 30% forever, if the underlying portfolio produces a 5% long term return, based on an entry price of a 30% discount this translates into an equity return of 7.1% to investors. This is because the 5% portfolio return is based on 100 cents in the dollar (so increases 5 cents each year), however if you only pay 70 cents than the increase is 5/70 = 7.1%. Therefore we believe we can be more patient in waiting for the discount to reduce.

      BAF has paid constant dividends, but to be honest we are not overly concerned whether profits are paid out or retained, as the increase in value to investors is the same.


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