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  1. FinanciallyFreeAustralia

    FinanciallyFreeAustralia Member

    17th Jan, 2015
    Adelaide, SA
    Just to state upfront I have no LIC holdings so consider myself relatively neutral on this. I have looked at it a few times after hearing many recommend AFI/ARG based on their impressive long track records. I can understand how they have such strong supporters. However personally I prefer the transparency of ETF's with a real-time NTA.

    Furthermore there is this issue of pre vs post tax NTA. I don't think this issue of unrealized Capital Gains is specific to LIC's, it could also effect managed funds and share index ETF's as far as I'm aware. But I guess the CGT issue is more magnified for long running funds such as AFI/ARG. And indeed when you see their post tax NTA can be 10 to 20% lower than pre tax. I do understand and accept the position that the funds are long-term holders and this unrealized CG is largely a "theoretical" tax. However IMO it is still a real issue and a tax position that anyone buying into these shares is assuming. So for my money, I would always be targeting a discount to the pre tax NTA. Not all the way down to the post tax NTA, but somewhere in between. This is just my view and as stated at the start, i'm perhaps not a natural LIC investor.

    At the current time, I notice there are actually healthy premiums to the pre tax NTA. Based on the end Dec'14 ASX report it seems AFI/ARG are 6-7% premiums over the pre tax NTA. Perhaps this is being supported by yield investors driven into shares due to low interest rates. The NTA premium could even go higher too if the trend continues. But personally it seems very risky to me to pay a premium to the pre tax NTA. I would much rather an index ETF, safe in the knowledge I am getting full asset backing behind my investment (at least on a pre-tax basis).

    Interested to hear other thoughts on the above. Thanks, FFA