9/10/2019 Selecting LICs/LITs to suit your portfolio October 2019 - PDF document

9/10/2019 Selecting LICs/LITs to suit your portfolio October 2019 1 Important Disclaimer This presentation has been prepared by Affluence Funds Management Limited ABN 68 604 406 297 AFS licence no. 475940 (Affluence) as general information only. The presentation includes information in relation to various securities. The information is not a recommendation by Affluence or any of its officers, employees, agents or advisers. The information does not consider your investment objectives, financial situation or needs. You should consider those matters, read the disclosure document and other relevant investment information and consult with your investment advisor if applicable before making any investment decision. The disclosure document for each security will contain important notices and disclaimers, important information about the offer and details of key risks. None of Affluence, its respective officers, employees, agents, advisers or any other person named in this presentation makes any representation as to the accuracy or likelihood of fulfilment of any forward looking statements. There is no guarantee of any distributions, any investment return or repayment of capital. 2 Some reasons we like LICs (& LITs) This is why LICs should be part of your portfolio. Quality - Manager quality is much higher than managed funds. Mispricing - Smaller LICs can provide the greatest opportunity. Flexibility – Liquidity and ease of trading. Lower Volatility – LICs can fare better in small corrections. Choice - You can now construct a very diversified LIC portfolio. 3 1

9/10/2019 The big reason we like LICs - discounts & premiums Right now, we’re seeing unusually large discounts. If you buy cheaper than average, you can make extra returns. Info on prices & discounts is available from many sources. 4 Some things to think about when considering LICs This stuff really matters. What assets does the LIC invest in? How does the investment strategy work? Would the assets/investment strategy complement your portfolio? How has the LIC performed (investment and share price)? How volatile has that performance been? Am I paying a premium or getting a discount? 5 More things to think about when considering LICs Manager integrity is paramount. IPOs - options, costs and incentives? Raising capital at a discount to NTA is not cool. The make-up of the shareholder base is important. A commitment to continuous marketing helps a lot. Long Term Success = Long Term Performance + Regular Dividends + Quality Communication + Loyal Shareholders 6 2

9/10/2019 These things do not guarantee success Do NOT buy an LIC... Just because it made 30% last year (performance is cyclical). Just because of the dividend yield (value traps and sustainability). Just because of the low fee (ETFs might be better). Just because it's big (Warren Buffett and shock absorbers). Without knowing the discount/premium (do your homework!). Just because it's an IPO (actually, maybe now you can!). 7 How might LICs fit into your portfolio? How much of your portfolio should be in LICs? Do you value the factors that LICs can bring? Top quality, active managers who can outperform. LICs trading at abnormally large discounts. Different asset classes or investment strategies. Sector wide discounts - swap some other investments for LICs? Opportunistic trades driven by special situations. 8 LIC theme - keep doing what’s working (growth) Mostly expensive, but quality ain’t cheap & they have performed. Global growth at a fair price (MGG, MFF , MHH). Small & loved (OPH, BST , WMI, TEK). ASX 200 done well (WLE). Best ideas fund (HM1). 9 3

9/10/2019 LIC theme - there’s value in value Cheaper than average in an expensive world. Aussie large value (PIC, QVE). Small & unloved (SEC, FOR, NAC/NSC). Resources (WIC, OZG, TGF). Global (PMC, PGF , APL, MEC). Unloved Asia (PAI, EAI, PAF). 10 LIC theme - debt investing is in vogue Almost all these LITs trade at NTA or a small premium. Quality with regular yield (PCI, MXT). Equity like returns (QRI, MOT). High yield, high risk (be careful!). 11 LIC theme - absolute returns Better than average in a falling market. Long short (RF1, MA1, VG1). Discount capture (GVF , AIQ). Activist investor (SNC). Market neutral (ALF , AEG). Desert island stocks (FGX, FGG). Fallen angels (LSF , BAF). 12 4

9/10/2019 LIC theme - invest differently Not your usual ASX200 portfolio! Concentrated and founder led (NGE, RYD, TOP). Grain and water (DBF , D2O). Berkshire Hathaway at a discount (GFL). Private equity (BTI, CD1, CD2, CD3). 13 Predictions - where to from here? Debt based LITs will continue to be in high demand. Other IPOs are getting harder (unless you’re Magellan!). Buyers are returning. We think it will continue. Discounts are leading activist investors to get more involved. Underperformers are coming under more pressure. Value will matter again one day - NTA discounts will close. LICs look waaaay more attractive than index funds. Active investing will make a comeback. Fill some gaps in your portfolio - buy some LICs!!! 14 That's all folks! Your feedback is important to us. THANK YOU FOR ATTENDING! 15 5