Listed Investment Companies (LICs) | March 2020 performance review and update
Top picks: Our top picks refer to preferred exposures within each sector based on numerous quantitative and qualitative factors. They should not be treated as official stock recommendations but merely as a guide to where we would apportion funds at this point in time. The table on page 3 provides an update of the overall sector, as at 31 March 2020, with our estimated current net tangible assets (NTAs) derived from our model portfolios for the LICs.
Traditional LICs: Markets continued the rapid sell-off which started in mid-Feb and continued into mid-March, as countries across the globe began implementing social distancing measures, lockdowns and other control measures as a result of the coronavirus pandemic. In addition, we saw oil prices fall to levels not seen in over 15 years. To mitigate the impacts of COVID-19 – including business closures and job losses – monetary policy was eased globally and governments introduced considerable fiscal stimulus measures. With the announcements of these measures we saw markets forming a relative trough in mid-March, with the rebound continuing into April. These events saw the All Ordinaries Index finish with a return of -20.9% in March. The traditional LICs returned -18.5% and -20.8% on a total shareholder return (TSR) and pre-tax Net Tangible Asset (NTA) basis respectively, slightly outperforming the index on both measures. We have also not seen any material increase in the discounts relative to their one- and three-year average discounts. Our current top picks include Australian United Investment (AUI), trading at an estimated 5.5% discount to NTA, and Milton Corporation (MLT), trading at an estimated 4.8% discount to NTA.
Large capitalisation: With a 17.1% fall for the month on a TSR basis, top pick Perpetual Equity Ltd (PIC) outperformed the ASX 300 TR index by 3.7%. Its NTA performance of -15.6% outperformed the index by 5.3% during the month. This was helped by PIC’s cash position of 16.6% as at the end of February as well as put options in the portfolio which provided protection as markets fell – allowed the manager to deploy cash as opportunities appeared. Our value top pick, L1 Long Short Fund (LSF), was down 32.4%, with its NTA performance during the month of -22.9% underperforming the ASX 200 TR Index, which was down 20.7%. This saw LSF’s discount increase to 29.4% at the end of March. The discount has since reduced to 22.3%, as at 27 April, following management initiatives to reduce the discount, including a share buyback.
Small capitalisation: Acorn Cap Inv Fund (ACQ) was down 28.6%, underperforming the ASX Small Ordinaries Accum Index (XSOAI), which was down 22.4%. On an NTA basis, ACQ (-21.9%) outperformed the index. An experienced manager offering an active exposure to small cap and unlisted investments and trading at a 14.6% discount, ACQ is a top pick.
International: MFF Capital Investments (MFF) returned -12.3% for the month (TSR) and -12.5% on an NTA basis, underperforming the MSCI World (AUD) benchmark, which was down 7.7% during March. Over a longer time horizon, it is still one of the best performing managers, and with an estimated discount of 6.5%, MFF is a top pick. Platinum Asia Ltd (PAI) returned -1.1% for the month (TSR) and -1.5% on an NTA basis. This compares to the MSCI Asia Ex Japan Index (AUD) which was down 6.5% during March. For investors looking for a regional exposure in Asia, PAI is a regional manager with a 65% allocation to greater China – which is ahead of other parts of the world in recovering and restarting their economy after COVID-19. PAI, which is trading at a 12.8% discount to NTA, is a top pick. Click here to read full report