Leading investment research house, Independent Investment Research (“IIR”), has today released their monthly Listed Investment Company (LIC) update for October. Australian equities had a weak month with the S&P/ASX 200 Accumulation Index down 2.1% for the month and 3.2% for the three months to 31 October 2016. This dragged down returns for the 12 months, although the index managed to record a gain of 6.1% for the 12 months to 31 October. Small caps gave up some of their gains and underperformed the broader market, with the Small Ordinaries Accumulation Index down 4.7% for the month and 4.8% over the past three months.
Australian large cap share focused LICs continued to underperform the broader market with an average portfolio return (pre-tax NTA plus dividends) of 2.3% for the sector over the past 12 months. Over the past five years this LIC sector has delivered an average portfolio return of 8.7%, slightly below the S&P/ASX 200 Accumulation Index return of 9.2%.
For investors seeking exposure to the Australian large cap market sector, two of the largest LICs in this space, Milton Corporation (MLT) and Argo Investments (ARG) offer good value trading close to pre-tax NTA at 31 October, and below their three-year average premium.
The performance of small and mid focused LICs continues to reflect the strong performance of the small cap market sector. For the 12 months to 31 October 2016, the average portfolio return from these LICs was 11.9% compared to the Small Ordinaries Accumulation Index return of 14.9%
Returns from internationally focused LICs/LITs remain mixed, but mostly negative given the relative strength of the Australian dollar over the past 12 months and low returns from some overseas markets. The MSCI World Index (AUD) fell 5.1% for the 12 months to 31 October 2016.
IIR analyst Peter Rae, said: “October was an active quarter with the pipeline of listings, capital raisings and corporate action remaining strong. We saw Forager shareholders vote in favour of a December listing, Bailador announce a $17.45m equity raising, Thorney announcing the launch of a new technology LIC and Watermark launching a new global LIC.
“From a performance perspective, we continued to see the small and mid cap LICs outperform the large cap LICs, however the overall sector return was dragged down by a couple of outliers that delivered negative returns. Of the LICs that we cover, Contango MicroCap (CTN) remains at the top of the table with a 12 month portfolio return of 24.2%.
“While the short-term outlook for some of the large cap sectors remains uncertain, over the medium to long-term we would expect the Australian large cap share focused LICs to perform broadly in line with the market.” Mr Rae concluded.
