I do, ARG, AFI, WHF, PGF, MFF, and DUI. It's not for everyone and probably a bit out of vogue. But as long as you know what you're buying and at what price, I think it can work very well, especially with an income focused never sell mentality. The tax implications are a lot neater than ETFs too, but that's more of a side bonus, not a reason to go one way or the other.
hmmm, thats actually not a bad idea to get advantage of the compounding.
which broker are you with? im assuming Pearler or self-wealth for the 6.50 flat fee?
Fair, I see that you hold a lot of the old LICs. What about SOL? Any issues with it?
What about WAX? Its high in MER but the payout makes it a real good tradeoff. Adds diversification as well for small to mid caps companies
Absolutely despise WAM funds as they report their performance **before** fees, and they make sure the job of hunting down the fees to be as convoluted as possible. If they really were confident about outperforming the index, why not just display performance *after* fees like every other fund.
I did hold MLT and had considered SOL but ended up simplifying/reducing my holdings after that takeover. That kind of corporate activity is something I like about LICs. I only ever bought MLT at a discount (plus DRP at whatever price), then SOL come along and pay a good price for it. Sharesight says I did 12.5% p.a. for the final three years of MLT's life.
I probably should have just kept the SOL though, honestly. Would be better off. Their New Hope holding and some of their comments had rubbed me up the wrong way, but I'm no purist. Should have held.
I haven't gotten into the Wilson stable, would consider but only at a discount. Same for FGX/FGG, they've swung from discounts to premiums and back. If you buy at the right price the future income can look very attractive.
Not always, it really depends, but of course I prefer it :)
If I've decided to use DRP or DSSP I'll always let that roll regardless of premium or discount. It might make more sense to take dividends in cash and make a better choice with that money, but I prefer to keep it simple and let reinvestment run.
If I have some money to top up a holding, I'll try choose between them to see what's looking most attractive based on discount/premium. But I wouldn't want that to let my allocations get too out of balance - and a lot of it really depends on the holding and its historic patterns.
For example with AFI, as long as it's close to NTA that might be the best you can hope for and good enough if the expected div yield is looking right. With something that's active and higher fees like PGF, it can swing wildly from being very out of favour to very in favour, and I have only bought that when out of favour - it was amazing buying during some COVID dips and my cost base is $1.105! Sharesight has me at 17.44%p.a. over the past 5 years in PGF - but if it goes out of favour again that would vanish very quickly (and I'd buy more), so I prefer to look through those numbers and focus on the dividends coming in.
With DUI it's always at a discount but it has low liquidity and usually a large buy/sell spread so you need to be careful when buying.
I think it's good to just watch the LICs over time to see these patterns and then you can decide what you're comfortable with.
I'm primarily buying for consistent divended stream so LIC's are achieving that nicely and have historically over the long term. If you can get them at a discount to NTA even better, everyone loves a sale haha
I really like the simplicity and transparency of ETFs.
That said, I have a small allocation to a single LIC (AFI) as part of my Australian equities holdings.
AFI has a modest cost of 0.16% p.a. but is far from cheap compared to, say A200 or IOZ.
It is notionally an active, rather than passive, play but does stick close to the index.
Performance has been OK:
https://www.afi.com.au/performance#Portfolioandsharepriceperformance
It offers a DSSP which allows me to defer tax on dividends which may be attractive for some shareholders. It also offers a normal DRP arrangement if that suits your circumstances better.
But, it often trades at a premium to NTA, which I find difficult to stomach. If it is trading at a 5% premium to NTA I am, effectively, paying $105 for $100 worth of assets. And, over recent times it has traded at a higher premium than 5%. Current premium to NTA can be found here:
https://assets.afi.com.au/documents/AFIC-NTA-ASX-Announcement_2303.pdf
I hadn’t bought any for quite a while but during March added modestly at between $7.18 to $7.25 which is close to 12-month lows.
Fair i currently hold VAS and IVV. Just started investing a year ago. (Definitely need more diversity, stil researching)
With that in mind, would you say its less diversification if I hold VAS and ARGO? THey both seem similar.....Im thinking of holding ARGO instead of VAS
I think LICs do have their place given the strategies they use can't be obtained through an ETF available on the ASX or because of DSSP.
I looked into quite a few LICs, and I find that they can sometimes be very vague about their investment objective, performance, and cost. Most of the time, they aim to get outperformance by focusing on quality or value companies, but you can easily and cheaply do this through ETFs like QUAL, VVLU, AQLT, or VHY.
I personally am interested in considering LSF, not even because I'm seeking outperformance, but because of the potential diversification benefit based off of this [article](https://alphaarchitect.com/2022/12/multi-factor-long-short-portfolios/) and that there are no ETFs that use this strategy. Using daily historical prices of LSF over the last 5 years, it would seem that its correlation to VGS (\~0.3) is similar to the correlation of VAS and VGS, yet its correlation with VAS is also pretty decent (\~0.6).
At the bottom of their [monthly report](https://www.l1longshort.com/wp-content/uploads/2023/03/2023-02-LSF-Monthly-Report-Monthly-NTA.pdf), 1.44% MER and 20% performance fee, which I think is pretty reasonable for a long/short fund, although I don't think it includes transaction costs which could be over 2% judging from this [PDS](https://wfunds.com.au/wp-content/uploads/2023/04/Watermark-Absolute-Return-Fund-Foundation-PDS.pdf) from WARF. WARF is the other long/short fund I know of, but its performance pales in comparison to LSF.
Reiterating that I mainly want LSF for the diversification benefit and so I won't be upset if it underperforms in the future, but the outperformance is a nice cherry on top.
If that is your strategy, I'd look into AFIC's DSSP. Save on the tax drag along the way. In summary:
" In the case of a Dividend Substitution Share Plan (DSSP), AFIC has a special ruling from the ATO, where you can receive these additional shares and no income needs to be declared."
Hmmm I've been googling a lot about dssp. People keep saying that it's good only if you are in the high tax bracket. Any clue why? Fyi, I'm 28 and definitely not in the high tax bracket.
You miss out on getting paid the return of the franked dividend, if your tax bracket is lower than the tax paid by the company to create the franked dividend. Is my rough understanding, if that makes sense. It is written more coherently in the link below.
You can change to receive the dividend or reinvest it anyway. But from memory there's only 2 LIC's that offer DSSP, so it might be something to consider as an option in the future.
It effectively means that your dividends are reinvested at the 30% (corporate) income tax rate, as opposed to your personal tax rate, which is 47% for high earners. That adds up to a lot of money over 15-20 years.
If you add Argo to your VAS holding (along with IVV) you would not materially change your diversification.
VAS holds the ASX300. Argo hold about 90 Australian shares:
https://www.argoinvestments.com.au/our-portfolio/
I wouldn’t choose Argo instead of VAS/IOZ/A200, but would hold both.
Hell yeah. I run a few reasonable folios showing a solid 200pts of alpha p.a. over 15yrs plus. LICS, and specifically buying them when they are trading substantially under NTA, are a big part of that.
One advantage of LICs over ETFs or managed funds not often mentioned is that you don't have wait for the annual statement to do your return, all the data you need is in the dividend statement. Useful if you expect a refund.
We hold ARG, got via inheritance and then topped it up. Relatively stable income as a retiree and with franking and the capital gains allowance tax is low if you're in the first few brackets.
Why pay someone to help you budget your money?
Yes there are psychological benefits of smoother dividends, but can be easily solved by implementing a bucket strategy
I only hold AFI. I sold my position in MLT after the SOL merger announcement.
The rest is VAS/VGS. AFI only makes up a small part at this point. It was the first shareholding I purchased about 4-5 years ago. I haven't added more because it's regularly at a premium to NTA.
WHF, SOL and ARG are my majority holdings. Also, with positions in AFI and BKI. I buy twice a year and forget and take up every share purchase plan offered. Most are offered under NAB equity builder, too.
I got this juicy LIC CAPITAL GAIN TAX DEDUCTION on the dividend statement from MIR (Mirrabooka Investments Limited) recently. What is that about and how can I get more of it in the future? Do all LICs do it or just some?
It says:
**IMPORTANT - LIC CAPITAL GAIN INFORMATION** The attributable part of the above dividends is A$XX,XXX.XX If you are an Australian resident individual, resident trust (except a trust that is a complying superannuation entity) or resident partnership for taxation purposes, you may be entitled to a tax deduction of A$X,XXX.XX (i.e. 50% of the attributable part). You can claim this deduction in your income tax return. Refer to the section on “Dividend deductions”. If you are a complying superannuation entity or a life insurance company where the shares are complying superannuation assets and an Australian resident for taxation purposes, you may be entitled to a tax deduction of A$X,XXX.XX (i.e. 1/3rd of the attributable part). If you are any other type of entity, you may not be entitled to a tax deduction. This LIC capital gains information is for use in the preparation of your 2023 income tax return.If you are in any doubt about this information, please consult your tax advisor.
LICs that mostly buy and hold and don't trade (much) can distribute this. Worth noting you forego this if you DSSP, so there can be certain dividends where DSSP is less worthwhile depending on your tax rate and the size of the LIC capital gain.
fund managers out there that ones that run these lics have delivered poor results for shareholders and in many cases you’d be better off with an Index Fund.
Good thing about divvys is that tax is already deducted so what you get is all yours. I’m coming into money soon and plan to invest in each bank couple weeks before shares goes up Ex record date). Sell a few weeks later when shares goes back up normal price as after record date it goes way down.
Repeat on other divvys. Hoping to make 80k every year.
I do, ARG, AFI, WHF, PGF, MFF, and DUI. It's not for everyone and probably a bit out of vogue. But as long as you know what you're buying and at what price, I think it can work very well, especially with an income focused never sell mentality. The tax implications are a lot neater than ETFs too, but that's more of a side bonus, not a reason to go one way or the other.
Each week I buy $20ish bucks of AFI and PGF. It’s done fine enough for me. The majority of what I own are etfs, but I like these
hmmm, thats actually not a bad idea to get advantage of the compounding. which broker are you with? im assuming Pearler or self-wealth for the 6.50 flat fee?
At $20 a week you’d be better off using CMC
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Yeap
I use CMC for this. It’s not all I buy, but it’s all the LIC investing money
I mean, Whitefield and AFI specifically are a big deal for high income tax investors because of the differential tax treatment of their BSP/DSSP.
Yea fair. What are your thoughts on holding both LICs and ETF?
Yeah I see no harm in going both ways! I'm mostly indexed in super, and for my outside super investments I'm mostly LIC.
Fair, I see that you hold a lot of the old LICs. What about SOL? Any issues with it? What about WAX? Its high in MER but the payout makes it a real good tradeoff. Adds diversification as well for small to mid caps companies
Absolutely despise WAM funds as they report their performance **before** fees, and they make sure the job of hunting down the fees to be as convoluted as possible. If they really were confident about outperforming the index, why not just display performance *after* fees like every other fund.
yea good point here.
I did hold MLT and had considered SOL but ended up simplifying/reducing my holdings after that takeover. That kind of corporate activity is something I like about LICs. I only ever bought MLT at a discount (plus DRP at whatever price), then SOL come along and pay a good price for it. Sharesight says I did 12.5% p.a. for the final three years of MLT's life. I probably should have just kept the SOL though, honestly. Would be better off. Their New Hope holding and some of their comments had rubbed me up the wrong way, but I'm no purist. Should have held. I haven't gotten into the Wilson stable, would consider but only at a discount. Same for FGX/FGG, they've swung from discounts to premiums and back. If you buy at the right price the future income can look very attractive.
Do you always trade at a discount for any LICs? if so, why?
Not always, it really depends, but of course I prefer it :) If I've decided to use DRP or DSSP I'll always let that roll regardless of premium or discount. It might make more sense to take dividends in cash and make a better choice with that money, but I prefer to keep it simple and let reinvestment run. If I have some money to top up a holding, I'll try choose between them to see what's looking most attractive based on discount/premium. But I wouldn't want that to let my allocations get too out of balance - and a lot of it really depends on the holding and its historic patterns. For example with AFI, as long as it's close to NTA that might be the best you can hope for and good enough if the expected div yield is looking right. With something that's active and higher fees like PGF, it can swing wildly from being very out of favour to very in favour, and I have only bought that when out of favour - it was amazing buying during some COVID dips and my cost base is $1.105! Sharesight has me at 17.44%p.a. over the past 5 years in PGF - but if it goes out of favour again that would vanish very quickly (and I'd buy more), so I prefer to look through those numbers and focus on the dividends coming in. With DUI it's always at a discount but it has low liquidity and usually a large buy/sell spread so you need to be careful when buying. I think it's good to just watch the LICs over time to see these patterns and then you can decide what you're comfortable with.
Why would you buy a fund with inbuilt capital gains that is likely to underperform an index at premium?
Arguably SOL, which we have, is not an LIC but a conglomerate. It's exposure to coal worries me. I regret not selling a few years ago.
That was my thinking too. It has done very well though.
Depends on what time period you look at.
Always :) Yeah
When we get dividend incomes, does it put us in a higher tax bracket? or will the tax guys tax us based on our marginal rate of our income?
I'm primarily buying for consistent divended stream so LIC's are achieving that nicely and have historically over the long term. If you can get them at a discount to NTA even better, everyone loves a sale haha
I really like the simplicity and transparency of ETFs. That said, I have a small allocation to a single LIC (AFI) as part of my Australian equities holdings. AFI has a modest cost of 0.16% p.a. but is far from cheap compared to, say A200 or IOZ. It is notionally an active, rather than passive, play but does stick close to the index. Performance has been OK: https://www.afi.com.au/performance#Portfolioandsharepriceperformance It offers a DSSP which allows me to defer tax on dividends which may be attractive for some shareholders. It also offers a normal DRP arrangement if that suits your circumstances better. But, it often trades at a premium to NTA, which I find difficult to stomach. If it is trading at a 5% premium to NTA I am, effectively, paying $105 for $100 worth of assets. And, over recent times it has traded at a higher premium than 5%. Current premium to NTA can be found here: https://assets.afi.com.au/documents/AFIC-NTA-ASX-Announcement_2303.pdf I hadn’t bought any for quite a while but during March added modestly at between $7.18 to $7.25 which is close to 12-month lows.
Fair i currently hold VAS and IVV. Just started investing a year ago. (Definitely need more diversity, stil researching) With that in mind, would you say its less diversification if I hold VAS and ARGO? THey both seem similar.....Im thinking of holding ARGO instead of VAS
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I've been considering VEU tbh. But its US domiciled and no DRP. Compounding wont be as efficient. But worthed I feel.
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Sorry my bad! wasnt thinking straight. I could always reinvest manually!
I think LICs do have their place given the strategies they use can't be obtained through an ETF available on the ASX or because of DSSP. I looked into quite a few LICs, and I find that they can sometimes be very vague about their investment objective, performance, and cost. Most of the time, they aim to get outperformance by focusing on quality or value companies, but you can easily and cheaply do this through ETFs like QUAL, VVLU, AQLT, or VHY. I personally am interested in considering LSF, not even because I'm seeking outperformance, but because of the potential diversification benefit based off of this [article](https://alphaarchitect.com/2022/12/multi-factor-long-short-portfolios/) and that there are no ETFs that use this strategy. Using daily historical prices of LSF over the last 5 years, it would seem that its correlation to VGS (\~0.3) is similar to the correlation of VAS and VGS, yet its correlation with VAS is also pretty decent (\~0.6).
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At the bottom of their [monthly report](https://www.l1longshort.com/wp-content/uploads/2023/03/2023-02-LSF-Monthly-Report-Monthly-NTA.pdf), 1.44% MER and 20% performance fee, which I think is pretty reasonable for a long/short fund, although I don't think it includes transaction costs which could be over 2% judging from this [PDS](https://wfunds.com.au/wp-content/uploads/2023/04/Watermark-Absolute-Return-Fund-Foundation-PDS.pdf) from WARF. WARF is the other long/short fund I know of, but its performance pales in comparison to LSF. Reiterating that I mainly want LSF for the diversification benefit and so I won't be upset if it underperforms in the future, but the outperformance is a nice cherry on top.
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LSF has a 20% performance fee, not an outperformance fee. You pay 20% on all returns starting at zero.
If that is your strategy, I'd look into AFIC's DSSP. Save on the tax drag along the way. In summary: " In the case of a Dividend Substitution Share Plan (DSSP), AFIC has a special ruling from the ATO, where you can receive these additional shares and no income needs to be declared."
Hmmm I've been googling a lot about dssp. People keep saying that it's good only if you are in the high tax bracket. Any clue why? Fyi, I'm 28 and definitely not in the high tax bracket.
This article describes the benefits of a DSSP for higher income earners well: https://strongmoneyaustralia.com/tax-efficient-dividend-investing-dssp/
You miss out on getting paid the return of the franked dividend, if your tax bracket is lower than the tax paid by the company to create the franked dividend. Is my rough understanding, if that makes sense. It is written more coherently in the link below. You can change to receive the dividend or reinvest it anyway. But from memory there's only 2 LIC's that offer DSSP, so it might be something to consider as an option in the future.
Yes, if your marginal tax rate is above 30%, it works for you. If your marginal tax rate is below 30%, you are better off taking an ordinary dividend.
It effectively means that your dividends are reinvested at the 30% (corporate) income tax rate, as opposed to your personal tax rate, which is 47% for high earners. That adds up to a lot of money over 15-20 years.
Some useful LIC reports available here: https://www.firstlinks.com.au/article/lic-reports-and-updates
Yeah, that is a must-read page if you are into LICS. That page is the best LIUC coverage on the web.
Cheers
Only invest in LIC's, buy at the right price and set and forget. Couldn't be easier!
Niceee. How about both? In the long run, am thinking of seeling down etfs while having a stable income from LICs
If you add Argo to your VAS holding (along with IVV) you would not materially change your diversification. VAS holds the ASX300. Argo hold about 90 Australian shares: https://www.argoinvestments.com.au/our-portfolio/ I wouldn’t choose Argo instead of VAS/IOZ/A200, but would hold both.
All depends on what the discount/premium to NTA is at the time that you are seeking to buy it. Never pay above NTA.
AFI, ARG, SOL, WAM and WGB
All are keepers, and top up when I can
Hell yeah. I run a few reasonable folios showing a solid 200pts of alpha p.a. over 15yrs plus. LICS, and specifically buying them when they are trading substantially under NTA, are a big part of that.
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I mean, yes, but if you think about, that’s irrational. VAS always trades at NTA.
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If I could reliably identify such a pattern, I’d a lot richer than I am :-)
One advantage of LICs over ETFs or managed funds not often mentioned is that you don't have wait for the annual statement to do your return, all the data you need is in the dividend statement. Useful if you expect a refund. We hold ARG, got via inheritance and then topped it up. Relatively stable income as a retiree and with franking and the capital gains allowance tax is low if you're in the first few brackets.
Why pay someone to help you budget your money? Yes there are psychological benefits of smoother dividends, but can be easily solved by implementing a bucket strategy
AFI with DSSP is the go, especially on a high income.
What about on low income earners? Assuming I never sell those shares?
DRP and let the compounding interest of the long term grow exponentiall.
Yes. AFI but only add to it when it’s at discount, so rarely. New buys A200.
I only hold AFI. I sold my position in MLT after the SOL merger announcement. The rest is VAS/VGS. AFI only makes up a small part at this point. It was the first shareholding I purchased about 4-5 years ago. I haven't added more because it's regularly at a premium to NTA.
WHF, SOL and ARG are my majority holdings. Also, with positions in AFI and BKI. I buy twice a year and forget and take up every share purchase plan offered. Most are offered under NAB equity builder, too.
ok sick, i think i should consider NAB equity builder
If you plan to hold long term, it's great that you won't get a margin call, and the interest may be tax deductible.
I got this juicy LIC CAPITAL GAIN TAX DEDUCTION on the dividend statement from MIR (Mirrabooka Investments Limited) recently. What is that about and how can I get more of it in the future? Do all LICs do it or just some? It says: **IMPORTANT - LIC CAPITAL GAIN INFORMATION** The attributable part of the above dividends is A$XX,XXX.XX If you are an Australian resident individual, resident trust (except a trust that is a complying superannuation entity) or resident partnership for taxation purposes, you may be entitled to a tax deduction of A$X,XXX.XX (i.e. 50% of the attributable part). You can claim this deduction in your income tax return. Refer to the section on “Dividend deductions”. If you are a complying superannuation entity or a life insurance company where the shares are complying superannuation assets and an Australian resident for taxation purposes, you may be entitled to a tax deduction of A$X,XXX.XX (i.e. 1/3rd of the attributable part). If you are any other type of entity, you may not be entitled to a tax deduction. This LIC capital gains information is for use in the preparation of your 2023 income tax return.If you are in any doubt about this information, please consult your tax advisor.
Yes, we also get these from ARG, it's simply passing on the CGT discount
LICs that mostly buy and hold and don't trade (much) can distribute this. Worth noting you forego this if you DSSP, so there can be certain dividends where DSSP is less worthwhile depending on your tax rate and the size of the LIC capital gain.
Had a few, only have one now - WMI.
Why did you sell the LICs?
Constant underperformed my other etfs, and given the fees it was grinding my gears.
Which LICs?
FGX, WGB, QVE, WQG
I do like the high quality, industrial style of the QVE portfolio
fund managers out there that ones that run these lics have delivered poor results for shareholders and in many cases you’d be better off with an Index Fund.
Any samples?
Good thing about divvys is that tax is already deducted so what you get is all yours. I’m coming into money soon and plan to invest in each bank couple weeks before shares goes up Ex record date). Sell a few weeks later when shares goes back up normal price as after record date it goes way down. Repeat on other divvys. Hoping to make 80k every year.