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LIC General Discussion

Discussion in 'Listed Investment Companies (LIC) and Trusts (LIT)' started by austing, 19th Sep, 2016.

  1. bingomaster

    bingomaster Active Member

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    This is a matter of debate, with no hard and fast answer - it comes down to many factors and personal preference. I think Vanguard goes about 50/50 in their mixed managed funds. But that's quite a high weighting to Australia from an index perspective, as Australia is only 2-3% of the world market. They cite the benefit of franking to be in favour of a higher weighting to Australia, up until about the 50% mark.

    But unless you're a fully committed Boglehead, I don't think everyone needs that much. Certainly from what I've read, the figure you mentioned of 25-30% would be plenty for diversification purposes.
     
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  2. CatCafe

    CatCafe Member

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    I haven't read into them extensively but I was just wondering if the fees for PMC/MFF/FGG are justified. From what I can tell they're between 1%-1.5% which seem expensive to me. Does exposure to international large caps warrant active management?

    I'm thinking 20%-25% international is a good spot to be in.
     
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  3. CatCafe

    CatCafe Member

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    What's the historical average dividend yield for international shares?

    Based on the research report linked here, it appears that VGS is yielding 4.1% which is excellent given I always assumed international shares yielded alot less. However, before I celebrate, is this normal and can it be sustained?

    LIC Sector Research Reports
     
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  4. austing

    austing Well-Known Member

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    Don't invest in VGS anymore but assume the current higher yield is in part due to capital gains from index changes. From memory it's likely to be closer to around 2.5% with no franking obviously.
     
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  5. Banawarra

    Banawarra Member

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    I forgot I also have around 4% in QVE that I would like to see drop in price so I can add to it.
    I guess the other thing about Australian vs international weighting is that there will be a lot of businesses in the Australian LIC holdings that are dependant on the world economy. It is not really a closed Australian only holding.
    I work in the agricultural industry and it is world markets that affect our pricing more than local issues.
     
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  6. austing

    austing Well-Known Member

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    FGG is the cheapest @ 1%. Most of the company related services such as board directors, investment committee, auditor, share registry etc are also being provided free. Normally if investing directly with the underlying Mgrs one could be paying over 4% in some cases if performance fees apply.
     
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  7. bingomaster

    bingomaster Active Member

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    Definitely agree with the international issues having the main effects on Australia. I think more and more so as time goes by with globalisation etc, all markets are getting more and more linked.

    I guess the diversification benefits are there more to prevent a "Japan" style event. If you only invested in Japan after its bubble, you would have had poor returns, but with enough international diversification, you would have done fine.

    Also I think having some other currency exposure is a good thing. You get this via some larger companies on the ASX, such as CSL and Brambles, but they are the minority
     
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  8. austing

    austing Well-Known Member

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    I've struggled over the years with local vs international allocation to shares. Despite what is being preached by the financial industry I've come to the conclusion that one doesn't really need to invest internationally unless you intend to live overseas. Since the US recovery coinciding with our high dollar a few years ago leading to spectacular returns it seems almost everyone is preaching the virtues of international diversification.

    There are a whole host of reasons why one doesn't need to invest internationally which is an entire subject in itself. But first up risk management is not so much about Aussie vs International shares but growth (shares, property) vs defensive (cash, TDs, bonds) assets. And if you invest for income Aussie shares are a no brainer with franking adding even extra.

    How many property investors here worry about having all their IPs in Australia?

    I've probably opened a can of worms stating the above but I try to not be one of the crowd.

    For dividend oriented investors Australia is a paradise. And God forbid if in the unlikely event our country takes a wrong turn it won't happen overnight. There will be plenty of warning and time to take pre-emptive action. So until this happens I'll continue to enjoy the excellent income from shares on offer in Australia.

    As for our small percentage of international holdings they are also Aussie based LICs with franked dividends being the primary objective. But in reality it is probably in part a result of me also falling victim to all the media hype:(.
     
    Last edited: 22nd Sep, 2016
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  9. bingomaster

    bingomaster Active Member

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    Excellent discussion as always, austing.

    With "the crowd" part, I struggle to decide where the crowd is on this one. The funds management industry is definitely selling their "invest offshore!" spiel, flogging their international funds and LICs. But on the other hand, most Australian investors I know have little to nothing invested offshore, and sometimes nothing outside of the top 20 stocks. So the crowd seems to be gravitating towards the big dividend payers on the ASX, too. Hard to tell.

    I agree it is indeed an entire subject in itself. Perhaps we need a thread on this.
     
  10. austing

    austing Well-Known Member

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    I've seen this argument discussed time and time again. Refer to this thread to get an idea of how monumental the Japanese Stock market bubble was:

    The Greatest Bubble of All-Time?

    Australia doesn't have the same structural problems as Japan and we are a young growing country population wise.

    Honestly these events don't happen overnight. There will be plenty of warning for "sensible" investors who don't fall victim to greed to take pre-emptive action. If Australia ever got like Japan did during their bubble it's quite possible a number of other countries around world will likely to be in a raging bull market as well. In such a situation I won't be worried about whether I've got international shares I'll be more concerned about moving out of shares and into cash!

    I've found this debate mostly an unwinable one. It just goes around in circles. Therefore it's more about what lets you sleep well at night. I'm just not prepared to sacrifice great income here in Australia due to fear of things that may never happen. Or if it did there would be plenty of opportunity to take defensive action well before the sh*t hits the fan! Remember we're not just talking about normal bull markets and crashes here (where I would continue to hold on) but a boom of a massive scale (I'm out and into cash).
     
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  11. austing

    austing Well-Known Member

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    Think Industry and Retail super funds for a start. SMSF's have been significantly increasing international exposure. Look at the number of ETFs, LICs and managed funds that have popped up in recent years. With SMSF's the ATO data doesn't show the true picture of international investments because most of it is done through funds / ETFs the majority of which the ATO includes under "Australian" managed investments.

    But I agree the word "crowd" was a poor choice. I should have used the word "hype" to reflect my view more accurately. Must proofread things in the future.
     
  12. unwillingwillis

    unwillingwillis Member

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    Great share portfolios Guys. Some interesting trends developing. MLT seems to be most investors major LIC holding, VGS and VAS are a fairly dominant part of our holdings. Everyone owns more than one LIC (see we are learning something on these forums).
    Banawarra,Catcafe and Anne I wish my mixed looked more like yours. I have too many direct holdings (that will slowly change over time).

    Thanks for sharing everyone. I for one have found this thread interesting.
     
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  13. bingomaster

    bingomaster Active Member

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    Fair enough! I think the arguments you make seem pretty convincing to me. But just to be cheeky and point out that one of the "right lessons" from the article you linked...

    Hehe. In all seriousness though, I think you're right - Australians will be fine with Australian shares. I think as time goes on, more and more businesses from Australia will have offshore operations, and things will become more and more linked anyway. Just like the S&P500 or FTSE100, where large portions of the income is derived internationally.

    I think there are a few advantages to having some international shares, but they probably arent essential for everybody. (For example in a GFC event, when the US market tanked, so did the AUD/USD dollar, which offset a great deal of the losses for an Australian investor.)
     
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  14. austing

    austing Well-Known Member

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    He he, I was waiting got that. A test to see if you read it completely.

    Gotta remember Carlson as good as he is, is in the US. Crap dividends over there AND no franking. So he comes at this more from a traditional asset allocation viewpoint. I come at it as a dividend investor as per the Thornhill approach. Very different and not generally accepted by the traditional financial planning community.

    Cheers
     
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  15. bingomaster

    bingomaster Active Member

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    Glad to hear someone is keeping me on my toes!
     
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  16. Banawarra

    Banawarra Member

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    Thanks Unwillingwillis, I don't know much, and all that I do know I've learnt off these threads and the extra reading and books as a result of following austing, the falcon and others. I only started on this journey earlier this year and still have a fair way to go. I can't be thankful enough for finding and getting into the other asset area of property chat. Hopefully invest chat will follow along with the same depth of knowledge. Cheers
     
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  17. Lazy Bee

    Lazy Bee New Member

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    I can't do one of those fancy pie charts either..

    Super
    ARG - 12%
    AFI - 12%
    MLT - 10%
    QVE - 7%
    VHY - 3%
    Direct Stocks - 56%

    Family Trust
    Direct Stocks - 100%

    The F/T will be converted into LICs (thinking WHF & AFI mainly due to DSSP).

    Not planning on purchasing any more direct stocks in either entity.
     
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  18. orangestreet

    orangestreet Member

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    I have just bought preferred LICs as and when I saw value without too much consideration to allocation percentages. I have only purchased about 10% of what I hope my portfolio will be before I retire. Plenty of time to rebalance and reach target allocation levels as and when the pie grows.

    For now, if I see my favourite LICs (think WHF, MLT, ARG, QVE) on 'sale', I will grab it. I have a LONG way to go with all of them before I reach anywhere near the levels where I think I have too much (or little) of it.
     
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  19. CatCafe

    CatCafe Member

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    What about those LICs do you find attractive?
     
  20. orangestreet

    orangestreet Member

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    Simply put, the focus on industrials, reduced exposure to resources (or none at all preferably eg. WHF) and a track record of consistent and growing dividend streams that goes back decades. With QVE, everything I have read about Anton T makes me like him more and more and I like IML's investing philosophy.

    I have not had a chance to load up on BKI still but will do so at the earliest opportunity.
     
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