Australia | Mar 03 2021
Independent Investment Research analyst Radek Zeleny sheds light on how Australia's listed managed investments fared during the pandemic
[A Listed Investment Company (LIC) is a listed investment vehicle that offers investors access to a diversified portfolio of shares in other companies also listed on the stock market. These are variously also known as Listed Investment Trusts or Listed Managed Investments. They differ to Exchange Traded Funds in that they are close-ended, whereas ETFs are open-ended vehicles that are created and destroyed by the ETF sponsor based on demand/supply, akin to a futures contract.]
Note: For comprehensive comparative data tables for LICs and ETFs please see attached. The story below is part of IIR's monthly update on Listed Managed Investments (LIMs), which in its entirety is attached to this story.
Evans & Partners LITs cease trading on the ASX
During January, three of the Evans & Partners LITs ceased trading on the ASX after unitholders voted in favour of transitioning the funds from a LIT structure to an open-ended unit trust. The three LITs that ceased trading were the Evans & Partners Asia Fund ((EAF)), Evans & Partners Global Flagship Fund ((EGF)) and Evans & Partners Global Disruption Fund ((EGD)).
The decision to delist the funds and transition to open-ended trusts was based on changes to the market conditions. The investment manager and responsible eEntity felt the listed trust structure was no longer the best structure for unitholders. The units had been trading at a discount to NAV leading into the decision.
The open-ended trust structure will allow for unitholders to redeem units at the NAV (less a spread). The IIR ratings for the funds remain subject to a review of the new structure.
Shareholders taking advantage of NAC bonus options
In March 2020, NAOS Ex-50 Opportunities Company ((NAC)) completed a 1-for-2 bonus option issue for shareholders. The issue was conducted to raise funds to grow the investment portfolio. The manager believes the optimal portfolio size for NAOS is $200-$300m.
23.8m options were issued under the offer. The options have an exercise price of $1.03 and can be exercised on or before 31 Match 2023. Shareholders have been taking the opportunity to convert some of their options and buy NAOS shares at a discount to net tangible assets (NTA) with circa 580,000 options exercised at the date of publish of this update.
The company’s pre-tax NTA has been above the exercise price of $1.03 since June 2020 with a pre-tax NTA at 31 January 2021 of $1.23.
BTI’s discount at narrowest in 4 Years
On 31 January 2021, Bailador Technology Investments ((BTI)) was trading at a discount to pre-tax NTA of 8.6%. This is the first time the LIC has traded at a single-digit discount since December 2016, based on month-end share prices.
The market is starting to appreciate the value of the portfolio of underlying investments.
Throughout 2020, the company traded at a discount to pre-tax NTA as high as 47% with the share price hitting a low of $0.49 in March 2020. Bailador Technology Investments was trading at $1.28 per share at January-end 2021.
WAX trading at a significant premium
WAM Research Limited ((WAX)) was trading at a premium to pre-tax NTA of 43.9% at 31 January 2021. Over the 12 months to January-end, the company has traded at an average premium to pre-tax NTA of 33.6%.
The company’s ability to provide an increasing dividend stream to shareholders is proving very valuable to shareholders, particularly given the experiences in 2020 with some of the individual stocks that were relied upon for income by investors having to suspend or cut dividends.
The impact and recovery from the covid downturn
The jury seems out whether covid in 2020 was a true Black Swan event. Nassim Nicholas Taleb, the originator of the term, says that for an event to be classified as a Black Swan “nothing in the past can convincingly point to its possibility”. Given mankind’s history of pandemics, it has been argued that the covid pandemic probably wasn’t a totally unpredictable event.
While perhaps semantics the covid crisis was largely unforeseen and created a short sharp shock for the markets in 2020. To surmise, 2020 was a rollercoaster ride for global financial assets.
During January and February the markets seemed to be powering ever higher, March however saw a swift decline as the markets reacted to the covid pandemic finally absorbing the full implications of the crisis and consequent shutdowns.
After a short sharp sell-off in March, there was much speculation whether markets would see a V-shaped recovery or was it to be an L or even W shaped pattern. Yet about ten weeks after the low was hit and despite the fact that covid was still rampant, around 80% of the losses were recovered.
We have now reached almost a year since the onset of the crisis and it has proved thus far to be a strong V-shaped recovery.
In the light of the markets again flirting with record highs, we look at how the LMIs (includes LICs and LITs) have coped with the crisis.
The traditional tool for measuring risk has been the standard deviation of returns, however, the measure that perhaps provides a better assessment of security and portfolio risk is drawdown. Drawdown measures the difference in value from the most recent peak to the most recent trough in the market measured in percentage.
We have examined the LMI sector drawdowns for the calendar year 2020 using the peak reported pre-tax NTA/NAV prior to the crisis (in January/February) and then the lowest reported pre-tax NTA/NAV after that (invariably March).
The graph below shows the average drawdown of the various LMI sectors based on reported pre-tax NTAs/NAVs. The group averages show that the pure Equity exposed LMIs overall fared the worst.