Plato Investment Management are launching a new Australian focused LIC with a focus on dividend yield, providing investors with monthly dividends. The IPO is open until 21 April 2017, and is aiming to raise $330m. We take a look at the offer.
It seems fund managers are currently lining up for their turn to tap into the lucrative Self Managed Super Fund (SMSF) investor segment and SMSF investors’ love for Listed Investment Companies (LICs). This time it is Plato Investment Management’s turn, with their Income Maximiser LIC (PL8) IPO due to open on 9 March, with the aim of raising up to $330m.
Plato’s Income Maximiser will be invested directly in Plato’s unlisted Australian Shares Income Fund, which has been operating since September 2011 and has almost $1b in assets under management. The fund invests in Australian shares, and as the name suggests has a focus on dividend yield, something that as we have touched on before, is so important for many Australian investors, particularly SMSFs. The fund boasts performance after fees of 14% pa since inception according to their Fact Sheet, outperforming the benchmark S&P/ASX 200 Franking Credit Adjusted Daily Total Return Index return of 12.3% pa. Included in this return figure is gross income of 9.1% pa over the period.
Plato’s key point of difference with this fund is its focus on regular income, offering monthly dividend yield to investors once sufficient profit reserves have been accumulated (expected to be July 2017). This is unique in the LIC space, with most funds offering dividends biannually or annually. As we have touched on many times at ETF Watch, LICs generally pay a very highly franked dividend, with most paying fully franked dividends to investors due to the franking credits they accumulate as a result of their company structure. However, as we recently posted, franked dividends should not be considered guaranteed, as they are dependent on the profit reserves held by the company.
To access listed Australian share based funds that offer monthly dividends, one currently has to move into the ETF space. There’s only two ETFs with dividend focus on monthly income. These include the actively managed and reasonably unknown Aurora Dividend Income Trust (AOD), as well as the smart beta Betashares Australian Dividend Harvester Fund (HVST). Both of these funds employ a different approach to Plato, with Aurora employing a risk management overlay (through the use of derivatives) to limit the actual exposure to the share market, and Betashares buying shares as they are about to pay their dividend to strip the maximum amount of dividends from the market. Whilst Plato can employ these tactics, it is not the primary objective of the fund, with a bigger focus on buying undervalued, high dividend paying companies.
There are a number of other ETFs with a dividend focus, as we have written about in the past, however most offer quarterly distributions a most. You can measure the dividend yield and view 5 years worth of dividend history for all ETFs and LICs in the ETF Watch Fund Database.
Plato Investment Management began life in 2006. According to their website, their philosophy is centred on the belief that the market is a complex, adaptive system and is therefore inefficient. Plato seeks to exploit these inefficiencies to maximise returns.
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 a generous expiry date of around 24 months after listing (29 April 2019). Shares will be listed at $1.10, with Net Asset Value of between $1.075 to $1.08. 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 $1.10 invested, the investor will actually receive $1.075 worth of shares. We expect management fees to be the same as the unlisted fund, of 0.90% pa, with no performance fees applying.
This post was prepared with publicly available information available from Plato Investment Management. ETF Watch did not receive any payment from Plato for this post.