Sector premiums and discounts are reactive to market conditions, with negative sentiment usually exacerbating on the downside. The MSCI All Country World and Growth indices are down 17% and 25% respectively YTD in native, creating opportunities in high quality managers trading at attractive prices in what appears to be a de-risking event. Add to this the fact that net inflows into Australian open-ended funds are decreasing, where retail investors tend to mistime the market. Discounts on alternative asset exposures with the potential to weather a stagflation situation are still yet to tighten.
Average sector discounts tend to be the widest during May before reverting over the second half of the calendar year. July is on average the best performing month for LIC/LITs when coupling the uplift to share price and asset backing. The equal weighted sector discount now stands at 6.8% based on our indicative figures. Purchasing at these levels can add further accretion when accounting for the normalisation effect after dislocations.
Figure 1: July on average is a standout month for LICs & LITs
SOURCE: COMPANY REPORTS, IRESS, BELL POTTER. FROM MARCH 2007 TO MARCH 2022.
Figure 2: Widest indicative discounts
SOURCE: COMPANY REPORTS, IRESS, BELL POTTER.
Figure 3: Discounts are reactive to the market
SOURCE: COMPANY REPORTS, IRESS, BELL POTTER. AS AT 13 MAY 2022.
Figure 4: Net flows into Australian open-ended funds are trending down
SOURCE: ASX, CHI-X, BELL POTTER.
The Indicative NTA works best with LICs that have a high percentage of investments concentrated in its Top 20, regular disclosure of its Top 20, lower turnover of investments, regular disclosure of its cash position and the absence of a performance fee. We have also included an adjusted indicative NTA and adjusted discount that removes the LIC distribution from the ex-dividend date until the receipt of the new NTA post the payment date. This report is published each Monday prior to the market open and is available on a daily basis. Intraday indicative NTAs will be available on request through your adviser.
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