Are LICs “dead in the water”?

Co-founder of the Switzer Report
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Last week, the Board of Ellerston Global Investments (ASX:EGI) announced that it would convert the company to an unlisted trust structure. This caused an immediate rally in its share price, and the media to speculate that other listed investment companies (LICs) could follow suit. Some more excitable commenters prophesized that “LICs were dead in the water”.

Ellerston Global is a small LIC that offers investors access to global investment opportunities with “compelling risk reward profiles”. Capitalized at around $110m, it invests in companies that are typically not well known to Australian investors. It has been dealing with a discount to NTA (net tangible asset value) challenge – that is, it has been trading on the ASX at a price that is about 17% lower than its NTA (the price per share that would be realized if all the LIC’s assets were sold, liabilities discharged, and funds then repaid to shareholders).

The investment performance of EGI has been quite strong, exceeding its benchmark over the 12 months to 31 October and over the last 5 years, and marginally underperforming over the shorter 3-year period. EGI has also had an on-market buyback in place to lend support, and is currently paying a fully franked dividend of 5 cents per share giving it a yield of more than 4.5% pa.

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