Update: 18/4/2016: Due to better than expected demand, the maximum IPO capital raising has been increased from the $330m detailed in the below post to $374m.
The biggest LIC IPO so far this year is with us. The first inkling investors had of this was when Wilson Asset Management unsuccessfully attempted a takeover of Century Australia Investments (CYA), back in January. Unsurprisingly, Wilson have decided to go it themselves, with an IPO of at least $165m for the WAM Leaders Limited LIC (WLE), a fund aiming to invest in under-priced equities in the S&P/ASX 200.
This will be the 4th LIC for the Wilson stable, sitting alongside WAM Capital (WAM), WAM Active (WAA) and WAM Research (WAX). The key differences of WAM Leaders compared to the other funds is the funds in focus. Traditionally the WAM funds focus on small to medium cap stocks with generally only 20-30% of the portfolio dedicated to large caps, whereas the WAM Leaders fund has a specific focus on a large cap equities, representing those equities in the S&P/ASX 200. The history of the WAM portfolio cannot be doubted with all funds having a strong performance history and high fully franked dividend yield.
The timing of this LIC is interesting and opportunistic for WAM. The last 12 months or so has seen outperformance of small to medium caps, which has helped to see 2 of their 3 funds significantly outperform the general market over this time. Wilson now see opportunities in large caps, specifically the banking sector and in true value manager style, whilst others are fearful, they see opportunity.
Whilst WAM Leaders will focus on Large Cap equities, it will follow the pre-existing Wilson Asset Management Investment Strategy, where there is a 2 parts to the portfolio, the longer term aspect which is research driven and attempts to invest in companies which are undervalued and the shorter term aspect which is market driven and looks for short term mis-pricing and arbitrage opportunities. Like the other WAM funds, the portfolio will be benchmark unaware, have the opportunity to hold a substantial amount of cash and may short sell securities. Whilst Short Selling is available, the manager does not expect this to be a large part of the investment strategy, compromising only around 10% at any time, notwithstanding their mandate allows up to 50%.
WAM Leaders certainly isn’t a first of its type as far as ASX listed large cap focused LICs go. The ETF Watch Fund database will show you plenty of LICs that meet the profile. What WAM Leaders offers is the Wilson Asset Management investment philosophy and a management team that understands and is committed to Listed Investment Companies. The 3 existing WAM LICs are all trading at between a 5% to 15% premium to Net Asset Value (NAV) which shows there is strong demand for the funds. We think with the Wilson brand behind it, the minimum capital raising of $16.5m will be easily met, and wouldn’t be surprised to see the maximum oversubscription allocation of up to a total of $330m met, or even a scale back or early closing of the IPO.
As per the usual LIC IPO process, investors in the IPO will be gifted a free option for every share they purchase. These options have an expiry date of around 18 months after listing (17 Nov 2017). Shares will be listed at $1.10, with Net Asset Value of between $1.08 to $1.087. Investors in the IPO should be aware of the above 2 facts, as exercise of options in the future will result in dilution of capital, and for every $1 invested, the investor will actually receive $0.982 worth of shares. Management fees will be 1% of assets per annum, with a performance fee of 20% of outperformance, fees that are consistent with the rest of the WAM stable.
This post was prepared with publicly available information available from Wilson Asset Management. ETF Watch did not receive any payment from Wilson for this post.