The current financial climate of low interest rates makes investing in listed investment companies (LICs) particularly appealing to self-managed super funds and other self-directed investors, says John Murray, managing director, Perennial Investment Partners.
He refers to the downward pressure of low cash and term deposit rates, combined with the volatile nature of the global share market. “That’s no longer working, they know they need to go into the stock market but they’re just a little bit uncertain. LICs can deliver a more consistent return over time, I think there’s a nice level appeal for direct investors,” Murray says.
Murray was speaking just ahead of the launch of Perennial’s Wealth Defender Equities LIC on March 20.
This is most commonly made available to investors via brokers and financial advisers. Though discussions with dealer groups were ongoing, Macquarie, Asgard, BT Financial Group and Colonial First State are currently making it available through their wrap platforms.
Favourable ratings also opens up Lonsdale, Securitor, Capstone, AMP and a number of other major groups as distributors of the fund, along with a number of independent financial planning groups. “With their own platform of choice and researchers of choice…it’s like anything, it’s building momentum, and over the next two to three weeks the snowball is gathering.”
In terms of fees, the Wealth Defender Equities LIC charges 0.98 per cent as a base fee, and as the market cap of the underlying company grows, this drops to 0.8 per cent. There is also a performance fee of 15 per cent over the all ordinaries performance.
“Our broad philosophy has been…a fair day’s pay for a fair day’s work. We’ve never been at the sharp end in terms of fees, you just can’t sustain that,” Murray says.
Another LIC also launched in recent weeks, with fellow Australian fund manager Argo announcing an infrastructure-focused LIC. Argo chairman, Ian Martin AM, emphasises the growth of Australian SMSFs as a significant opportunity for the business, combined with the $3.9 trillion global infrastructure asset sector.
Upside with protection
The Perennial fund aims to deliver the upside of an investment in Australian equities, while “efficiently and cost-effectively managing the downside risks in equity portfolios,” Murray says.
With an ex-ASX Top 20 bias, its top 10 contributors are Lend Lease, ResMed, Harvey Norman, Orora, AMP, Amalgamated Holdings, Aristocrat Leisure, Macquarie Group, Ansell and Amcor.
Murray says it takes a contrarian view on mid-cap stocks, which he believes makes it particularly appealing to SMSFs, in giving trustees access to funds they wouldn’t normally hold. “Investors, brokers and advisers say this provides something quite different.”
In addition to these stocks, the LIC also has around six per cent of its capital invested in the small cap end of the market.
Again highlighting why he believes it appeals particularly to super investors, Murray says: “rule number one is capital preservation.” He refers to Perennial’s strong emphasis on accounting qualifications among its team of managers, who focus intensely on the balance sheets of companies being considered for investment.
He also sees Perennial’s low portfolio turnover relative to competitors as a distinct competitive advantage. “If you were to line [our competitors] up…the industry would tell you that the average turnover is 100 per cent per year. I’ve always been a little bit challenged by that. Our average portfolio turnover is about 30 per cent,” Murray says.
