LICs & LITs Under Scanner; WAM Posts Decent Results

LICs & LITs Under Scanner; WAM Posts Decent Results

Lately, listed investment companies/trusts have come under scanner since questions have been raised on stamping fees charged by financial advisors and stockbrokers on these investment vehicles.

It has been speculated that the fees are in the range of 1 per cent to 3 per cent of the investment. Anti-LIC/LIT proponents have argued that stamping fees are a breach of provisions under the Future of Financial Advice reforms that banned payment from investment managers to advisors.

Recently, Federal Treasurer Josh Frydenberg instigated a review to check the merits of ‘stamping fees’ that are paid by investment managers to promote a newly floated listed investment product. It is believed that a four-week long consultation period would allow undertaking informed decisions on the fate of the stamping fees.

Listed investment companies and trusts have grown popular among retail investors, and these investment vehicles provide exposure to various asset classes, including fixed income, high-yield fixed income, junk bonds, equities, hedge funds, and private equity.

WAM Capital Limited, the flagship listed investment company of Wilson Asset Management, has disclosed half-year results.

WAM Capital Limited (ASX:WAM)

WAM Capital Limited has released half-year results for the period ended 31 December 2019, announcing a fully franked interim dividend of 7.75 cents per share to the shareholders in records on 21 April 2020, payable on 28 April 2020.

After tax NTA per share for the period was $1.89 as against $1.80 in the previous corresponding period. In the half-year period, the listed investment company (LIC) posted an increase of 168.4 per cent in operating profit before tax to $95.6 million.

Its operating profit after tax was $70.4 million, equating to an increase of 176.9 per cent over the previous corresponding period, reflective of the solid investment portfolio performance.

The fully franked dividend has been achieved through the solid performance of investment portfolio since inception, and the available profit reserve is in line with the company’s investment objective of delivering investors with a stream of fully franked dividends.

At the end of the period, WAM’s profit reserve was 10.6 cents per share that is included in the net tangible assets. WAM’s investment portfolio had an average cash level of 20.1 per cent, increased by 8.9 per cent during the period, beating the benchmark - S&P/ASX All Ordinaries Accumulation Index - by 5.3 per cent.

In the six months to December 2019, the portfolio delivered a total shareholder return of 15.2 per cent, indicating a significant investment portfolio performance and an increase in the share price premium to NTA.

Portfolio Performance

Accommodative monetary policies in Australia as well as globally helped additional growth in asset prices amid geopolitical tensions like the US-China trade disputes and Hong Kong protests.

The pockets of Australian economy depicted signs of weakness after a strong performance in the August reporting season, influencing sectors like automotive and retail while promising signs were noticed in mining and housing-based companies.

WAM portfolio was adjusted to capitalise on the opportunities arising out of this shift. The main components to drive the share prices higher included companies demonstrating strong growth potential and solid management.

Companies that contributed to the portfolio’s outperformance included Codan Limited (ASX:CDA) up 114.7 per cent, EML Payments Limited (ASX:EML) increased by 55.3 per cent, Australian Finance Group LImited (ASX:AFG) increased by 73.3 per cent, Megaport Limited (ASX:MP1) increased by 64.5 per cent, and Johns Lyng Group (ASX:JLG) increased by 51.6 per cent.

The stocks that detracted the portfolio performance included AMA Group (ASX:AMA), Cleanaway Wate Management Limited (ASX:CWY) and Vista Group International Limited (ASX:VGL).

It was noted that the media sector remained weak as key vertical like banks, automotive, and insurance lowered their advertising budgets. During the December quarter, there was a shift towards small-to-mid cap companies, and the high-flying technology sector was an underperformer.

Moreover, rising commodity prices in oil, gold and iron ore were linked to a strong performance by resources sector companies, which is expected to continue this year.

Meanwhile, mining services companies are likely to benefit from increased investments by mining companies. The property prices were strong, and the investment manager has a positive outlook for building material companies and property developers.

Considering the accommodative climate for equities domestically and internationally, the investment manager remains cautious with capital deployment, with 17.1 per cent in cash as of 31 December 2019.

Top 10 holdings in the portfolio as of 31 December 2019:

Brickworks Limited (ASX:BKW) – 2.9 per cent

Building material developer, Brickworks has posted a decent return of +25.8 per cent in the past six-month period.

Seven Group Holdings Limited (ASX:SVW) – 2.5 per cent

Diversified operating and investment group, Seven Group Holdings has delivered a return of +23.85 per cent in the last six-month period.

Pengana International Equities Limited (ASX:PIA) – 2.1 per cent

International equity fund, Pengana International Equities has delivered a return of +9.62 per cent in the last six-month period. Limited (ASX:KGN) – 2 per cent

Online retailer, has delivered a return of +0.61 per cent in the last six-month period.

Templeton Global Growth Fund Limited (ASX:TGG) – 2 per cent

Global investment company, Templeton Global Growth Fund has delivered a return of +10.12 per cent in the last six-month period.

Austal Limited (ASX:ASB) – 2 per cent

Shipbuilder, Austal Limited has delivered a return of +7.77 per cent in the last six-month period.

Service Stream Limited (ASX:SSM) – 2 per cent

Infrastructure services company, Service Stream has delivered a return of -7.69 per cent in the last six-month period.

Australian Finance Group Limited (ASX:AFG) –1.8 per cent

Mortgage broker, Australian Finance Group has delivered a return of +44.79 per cent in the last six-month period.

Collins Foods Limited (ASX:CKF) –1.7 per cent

Restaurant operator, Collins Foods has delivered a return of +7.46 per cent in the last six-month period.

Credit Corp Group Limited (ASX:CCP) – 1.7 per cent

Debt collector, Credit Corp Group has delivered a return of +50.92 per cent in the last six-month period.

By the end of the trading session on 10 February 2020, WAM last traded at $2.3, up by 2.22 per cent from the previous close.

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