LIC & LIT Goodbye managed funds, hello LIC's

So I was looking at my portfolio the other day and noticed the exit price of my Tyndall Australian Portfolio was $2.45. But then I noticed the entry price was $2.55! Add to this the buy/sell spread of 0.30%, and the MER of 1.99% and I've decided enough is enough.

I've been researching listed investment companies (LIC's) and their buddies, exchange traded funds (ETF's).

No entry fees, no exit fees, no buy/sell spreads and very low MER's. Sell with the click of a mouse button via online broking rather than writing to the fund manager requesting a redemption of your units.

Being exchange traded, there are brokerage costs, and their price fluctuates above and below the actual value of the underlying assets so you wouldn't want to sell when your stock is out of favour for whatever reason.

So I've decided to sell my Tyndall units and buy into the following:

* Streettracks ASX200 (STW). 0.29% MER, dividends twice yearly, can be leveraged to 70% with most lenders. Streettracks is a simple index tracker.

* Argo Investments (ARG). 0.15% MER, dividends twice yearly, can be leveraged to 70% with most lenders. Argo is a conservative buy and hold investor, has outperformed the index over the last 5, 10 and 20 years. The share price of Argo is currently higher than the underlying net tangible assets, presumably because people are prepared to pay a premium for their management expertise. 2.5% discount via their dividend reinvestment plan.

* Australian Foundation Investments (AFI). 0.12% MER, dividends twice yearly, can be leveraged to 70% with most lenders (not Leveraged Equities). Australia's largest LIC. Currently trading at a discount to their net tangible assets presumably because they have underperformed the index over the last 5 years.

See ya later retail managed funds. Unfortunately will be waiting a couple of months to sell Tyndall and buy these because I want the 12 month CGT discount.

Still keeping my Navrainvest wholesale funds, their fee structure I am comfortable with. Plus their product is quite unique.

 

Interesting research, thanks for sharing with us.

Have you considered the StreetTracks LPT fund, as an alternate to share based LIC? Yield is better, not well franked though, and growth is consistant but not spectacular.

 

Listed investment companies and CGT—overview

I switched to LICs around two years ago.
I's been a good decision.

Some info about the CGT implications regarding LICs can be find here .

 

Cheers Glebe.

I've been thinking exactly the same thing lately. I used to like funds and there are a handful out there that are worth investing in, but like you I feel that fees are just ridiculous (on most). HOWEVER, they do serve their purpose. Funds are great for people who have little experience with the sharemarket and even a small amount of research yields some good prospects.

I don't feel 100% confident picking and choosing individual shares just yet and I'm really beginning to believe that LIC's are a great move forward. Having said that I'm keeping my Navra and always will. Ever since I first saw Steve's actual trade results, I've been a fan and have the utmost confidence in Steve and his abilities to do very very well.

Mark

 

Hi,

Nice research. Thank you for taking the time to release results of your thorough investigating.

What is your aim with these? Will they sit in your portfolio more for growth or income?

Cheers,

 

Not a worry. Here is more info:

http://www.asx.com.au/investor/lmi/index.htm
http://www.asx.com.au/investor/lmi/how/inv_companies_trusts.htm
http://www.asx.com.au/investor/pdf/LIC_NTA_Report.pdf

My aim? To replace these with my current managed funds, the retail/fee driven ones anyway. Essentially I'm after growth in net worth by any means possible So essentially growth oriented with the help of franking credits and reinvested dividends.

 

Clime Asset Management

Listened to an ASX podcast by the fund manager of Clime. Was quite a good one.

Anyone own this LIC?

Simon

 

No I don't but his paper on valuing shares made a lot of sense to me.

Someone else has asked the question about his StockVal program. Anyone using it?

N.

 

Simon,

You might like this webinar

Clime Asset Management

 

Hi Glebe

I was just wondering if you were still switching across to LICs?

 

Hi Frank,

With their lower cost base I still think LIC's are the way to go, if you can find one that's appropriate for your circumstances etc.

For me though, I haven't sold my managed funds because I can't bear the capital gains tax.

If I had to start again though, I'd do things differently...

 

The Clime site also had this article on LIC history and recommendations.

 

I gave both my LIC's and Funds investments the flick about 10 years ago and went direct shares.

I haven't looked back, it's the best thing I ever did.

I have only re-entered one fund since and that's purely to provide income to offset negative geared property investments.

All the work that goes into researching Funds and LIC's can easily be subtituted into direct shares and save you all the fees as well as the bad decisions being made by the fund or LIC managers.

Like anything it becomes easier the more experience you get at it.

 

Allot of the newer LIC's have much higher fee's than the original ones: arg, afi, etc. I agree that if your spending time researching managed funds, you may as well spend that time researching stocks directly.
Clime are a company that follow warren buffetts methods with australian stocks, as I do. StockVal is used by them and was written by brian mcniven - if you get his book it tells you all about it and the val formula used etc.

Rgds,
Jason

 

So are just going to leave your money in these? How will you feel in 10 years when you're paying 2-3 times higher fees (in line with the % increase in the fund value)?

Get out now, I say. Scale down over a few years, to minimise the CGT hit. Or take a year off. Either way, you'll feel a lot better, I'm sure.

(I had a crap Legal&General super fund, which I got with my first job. The performance was so bad, but it had an exit fee of $4500, which at the time of exit was > 10% of the fund value!! But it felt so good copping the $4500 and getting out. I've made that $4500 over and over in my super since.)

Or, look at it like this. If your fund manager changes character, and the performance gets ****** in the bottom performance quartile, would you get out then? I suggest that would be too late.

 

I'm with Rick on this. Direct shares. No buy/sell spreads. No MERs. No % that grows and grows and makes some crayfish-eating, Shiraz-swilling fat cat fatter.

 

Hi Rod.

Do you buy into many companies, or do you just look at a couple and buy heavily into those?

I would assume you are buying into blue chip companies.

Do you buy and hold or sell high buy low etc?

 

I hold 26 different stocks on the ASX. I have had 22 of them for more than 12 months, and 11 of them for more than five years. I don't trade, although I do increase my holdings when the time is right (eg I have a buy order for $20k WBC at $24.80, and bought $30k more WES at $34.94 on March 5).
I have sold three stocks in my life: Microview (micro-cap Tech Boom disaster that started life as ChoasMusic, should have bought more QBE at the time instead), Jubilee Mines (shouldn't have sold this when I did, I missed a 150% rise in the last two years!) and Alinta, which I got out of when I heard about the management buyout (that just reeked). I am about to sell out of Rinker (upped my holding from 665 to 2000 shares last week to exploit the $19.50 loophole).
22 of the 26 are ASX200, the other four are my "go you good thing!" picks. So far 4/4 are in great shape, my current favorite is Atlas Iron, which has doubled in six months. I try to limit my exposure outside ASX200 to 15% of my ASX shares.
I have an IP, and moved into shares heavily about six years ago as I realised that with my PPOR and IP, I had about $1m in property and $3k in shares (a heavy asset allocation imbalance!!).

Most of my assets are outside of super (I'm 35 and might need to sell some assets in the future, eg school fees, home extension), but within super (low fee industry fund) I have 100% allocated to international shares.
This way I have asset allocation around 60:30:10 Res Property:ASX Shares:International shares. The international share allocation grows above returns ('cos of the 9% employer super contributions).

I'm looking at starting a SMSF next year, when my wife + my combined super assets make it cost effective.

Why 26 different shares, when a good diversification can be achieved with 10 stocks across different sectors? Because I've been buying regularly for six years, and at each buy time I look for other opportunities. I don't recommend anyone go out and buy 26 different shares at once, that would be stupid. But if you consider that a new purchase each 3 months = 24 different stocks in six years, it doesn't seem so painful.

And also, E-trade etc are offering 10 free trades to new applicants, so brokerage is not a concern.

I don't use margin lending; all my shares are through a line of credit which I top up when I can. I don't expect to buy too many more shares on the ASX in the next 12 months, although I'm starting to feel dreadfully under-exposed to BHP and RIO (even though they represent >20% of my portfolio).

Well, you asked.