Investors in Australia’s biggest Listed Investment Companies (LICs) have witnessed a fairly ordinary last 12 months. While on paper the portfolio returns of around 9% look reasonable, this masks the fact that they have underperformed the benchmark S&P/ASX 200 accumulation index by between 2.4% to 3.4% over this period. And if share price performance is considered (growth in share price plus dividends), they have fared even worse as any premium to NTA (net tangible asset value) has been crunched and they have moved to trading at a discount to NTA. The second largest, Argo (ARG), has returned just 1.5% on this measure over the 12 months to 31 March.
The move to a discount to NTA is not just related to performance. It’s also a reaction to Bill Shorten’s proposed change to franking credits. I have warned on several occasions that LICs trading at a premium are the most vulnerable group of stocks to any change (more vulnerable than bank stocks or hybrids) because the LIC market is purely a retail market and the premiums defy gravity. Institutional and offshore investors don’t buy LICs. All it takes is a few retail investors to move to the sell side and the premium can crunch very quickly.
If you are holding other LICs trading at a premium, they remain vulnerable to a premium crunch.