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Following the best investors & small market inefficiencies in LICs

If you were at a barbeque with some investors with great results, you would be tempted to ask what they have been buying and listen very carefully to their answer right? Yet at times LIC managers tell us this and the market is late in acting.

By Steve Green - Nov 06, 2016

This is a guest post from Steve Green. Steve is a full-time investor with a focus on LICs, event-driven and activist investing. You can follow some of his ideas at his investment blog at

If you were at a barbeque with some investors who were amongst those who had some of the best performance figures, you would be tempted to ask what they have been buying and listen very carefully to their answer right? Yet at times in the LIC space we have access to such resources but it seems that many investors don’t pay attention. For many, LICs can be useful vehicles so that we don’t have to get too much involved in thinking about individual investments. However, those that take a more active approach to monitoring their investments may find it useful to read monthly investment reports from the quality managers, as well as substantial shareholder notices.

Thorney & NAOS offer recent examples of the market reacting late

TOP (Thorney Opportunities) & NCC (NAOS Emerging Opportunities) have been some of the better fund managers picking smaller stocks over the last few years. A couple of reasons come to mind why we should closely examine their holdings. Firstly, we may find out some great investment ideas that they have written about in their reporting. Secondly, they run portfolios that are quite concentrated and this can offer clues to what may be the “live” NTA. That is, it may help in knowing what to pay for the LIC stock, given that they can sometimes release the month end NTA two weeks after month end.

On the first point I have personally benefited greatly from reading about TOP becoming a substantial shareholder in SSM, and NCC becoming a substantial shareholder in AIK, by following them into those two stocks over a year ago.

On the second point I have noticed many investors bid up the LIC stock aggressively the day or so after these LICs release a very good NTA report close to mid-month. This is despite the impressive monthly performance being fairly evident before the release of the report, for those that take the time to research their holdings.

TOP released a chairman’s update in June where we were told approximately 70% of the portfolio was concentrated in SSM, MNY & AMA amongst others. During September, these three stocks rose approximately 13, 10 & 7 percent respectively. On October 13th when they informed the market the NTA grew by around 7% should the market be surprised? Well interestingly the shares moved up over 5% quickly after this report was released to the market on the same day, so it seemingly surprised many.

NCC similarly surprised some in the market when late on September 12th they advised of strong performance numbers in August, with the portfolio rising 6.5%. The next day NCC stock closed nearly 5% higher to $1.25 and hasn’t been back there since. Should this NTA report have surprised us? The annual report released only a couple of weeks prior told us that at financial year end the top 5 positions made up 65% of the portfolio, quite concentrated. These included the larger positions in BSA, AIK & MNF. During that month one could have found out that these three-mentioned rose in price by 13, 4 & 7% respectively. I would argue the excellent NTA report released on September 12th should not have been of any great surprise.

Who are some other investors to follow?

So, who are some other good investors to follow? Geoff Wilson (WAM, WAX, WAA, WLE) is obviously quite well known and it is worth looking at his funds’ monthly reports because they will regularly lay out many more investments more transparently than the TOP & NCC reporting I highlighted above. With his funds trading at historically large premiums to NTA this may be currently a way to get some exposure to his ideas directly if you don’t wish to pay the large premiums.

The performance of SNC (Sandon Capital Investments) as a LIC hasn’t reached the heights of NCC & TOP thus far. To be fair though, I believe we should also judge them on their track record with their unlisted fund prior, which is very good with low volatility. If you followed their website over the last couple of years you could have read for free some impressive detailed presentations on their investments in BSL, TTS & FWD which could have been advantageous to act on. Sandon are another manager that accumulated a substantial stake in AIK at much lower levels.

Forager Funds are another fund manager that don’t hug the index and have excellent performance. They are unlisted but interestingly may be changing to the listed structure shortly. You can access their quarterly reports for free and may find some ideas there. They are another manager that bought a significant stake in SSM at very cheap levels, so we had two astute managers in the stock well before it took off. They have done well out of S32 but initially this stock fell after they purchased, potentially giving followers better entry levels.

Of course, one needs to take care about following fund managers into certain stocks. At times, you may not be able to get set at the same price they did, however in many examples you can. Also, it is possible they may sell the position and you only discover this on a delayed basis. On a positive note, you may benefit from being able to control your tax sitatuion via direct holdings, and save on fees.

Please note this is not a recommendation to buy the above LICs, rather a discussion that reading their reporting presentations may help some investors at various times. Investing with a fund manager with a good performance record may be negatively impacted if they begin to have a lean run, if you pay a large premium to NTA, incur high management fees and many other various factors.

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