Monthly Listed Investment Trust Report – Dec 2024

Australia | Dec 18 2024

A Listed Investment Company (LIC) is a listed investment vehicle that offers investors access to a diversified portfolio of shares in other companies also listed on the stock market.

Note: For comprehensive comparative data tables for LICs and ETFs please see attached.

IIR LMI Research
Below we provide a summary of the recently completed reviews including WAM Global Limited ((WGB)), Vaughan Nelson Global SMID Fund (Quoted Managed Fund) ((VNGS)), Sandon Capital Investments Limited ((SNC)) and Plato Income Maximiser Limited ((PL8)).

All reviews are available from the IIR website ( www.independentresearch.com.au ) or can be requested from the Managers.

WAM Global Limited ((WGB))
WGB provides exposure to an actively managed, benchmark unaware portfolio of global securities with the objective of generating superior risk-adjusted returns to the market over the medium-to-long term. The portfolio is managed by Wilson Asset Management (International) Pty Ltd, which along with MAM Pty Limited forms Wilson Asset Management.

The Manager is 100% owned by entities associated with Geoff Wilson, the Chair of the Company. The portfolio is managed using a combination of the Manager's proprietary market-driven and research-driven investment approaches, which have been used by the Manager in their domestic equity strategies since being established in 1997.

The Company has the ability to invest in stocks of all sizes, however has a bias to small and mid cap stocks. The Manager seeks to invest in a moderately concentrated portfolio of what it considers to be undervalued growth companies, to deliver on its investment objectives of capital growth over the medium-to-long term, a stream of fully franked dividends and capital preservation. As with all the equity strategies run by the Manager, the Company can hold cash for risk mitigation.

The Manager has the ability to short stocks, however, the portfolio has had little short exposure since listing and we expect the long bias to remain. An investment in the Company is suitable for those investors seeking exposure to an actively managed portfolio of global securities.

The portfolio is expected to have a small and mid cap bias and is therefore suitable for investors that are looking for a diversified exposure to the large and mega cap securities that tend to be of focus for many international funds. The Company provides a semi-annual dividend, franked to the maximum extent possible, and subject to the level of profits reserves available for distribution.

The Company had over 6 years of dividend coverage in the profits reserve as at 30 September 2024 suggesting there is low risk of dividend volatility in the near-term, however the franking account coverage has been variable. In the event the franking account is depleted this may result in dividends being partially franked or unfranked.

IIR has a Recommended rating for WGB. The Company now has a track record of over 6 years. Over this time the Company has met its objective of providing a stream of fully franked dividends, however has not achieved its objective of providing superior risk-adjusted returns to the market and has provided limited levels of capital preservation throughout its history thus far.

The benchmark has been a difficult benchmark to compete with in recent years given the performance of the benchmark has been driven by a small number of mega cap companies, which the Company has had little exposure to given the lofty valuations of theses companies and the inability to accurately forecast earnings for some companies.

The bias to small and mid caps has also weighed on the performance of the portfolio with this area of the market lagging large cap stocks. With the benchmark performance starting to broaden we will be looking for the relative performance of the portfolio to improve and the Company to move towards meeting its return objectives.

The relative underperformance of the portfolio has been a key contributor to the discount to NTA at which the Company has traded throughout its history, which has resulted in shareholder returns underperforming portfolio returns. The discount has narrowed in recent months on the back of improved performance and shareholder engagement activities. We expect improved risk-adjusted performance to be a key contributor to a continued narrowing of the discount.

Vaughan Nelson Global Equity SMID Fund (Quoted Managed Fund) ((VNGS))
VNGS is an Exchange Traded Managed Fund (ETMF) that listed in June 2022. The Fund provides exposure to the Vaughan Nelson Global SMID Cap strategy, which has an inception date of June 2020. The Fund is the quoted class of the investment strategy with the strategy also being offered through an unlisted unit trust. The Fund seeks to provide exposure to small and mid cap global equities with the objective of outperforming the MSCI ACWI SMID Cap Index, after fees and expenses and before taxes, on a rolling five year basis.

Vaughan Nelson Investment Management L.P is the Manager of the Fund. The Manager is a US based asset manager that was founded in 1970 and provides equity and fixed income strategies with US$17.8b AUM as at 30 June 2024.

The Manager has a fundamental, bottom up investment process with a targeted return approach. The portfolio only incorporates stocks that the Manager believes can generate returns of 50%+ over a three year period (~15%p.a. compounded), in the event the investment thesis plays out as expected. The portfolio will typically comprise 40-80 positions with the allocation to a single investment typically not exceeding 5% at the time of investment and the top 10 holdings typically accounting for 20%-25% of the portfolio.

The strategy is managed in a benchmark unaware manner with the portfolio typically having an active share of greater than 90%. The Manager uses proprietary factor analysis to ensure that the portfolio is diversified across factors and that the strategy does not have unintended factor bets. This allows the Manager to build a relatively concentrated portfolio while being representative of the investment universe from a risk profile perspective.

The Fund provides investors the opportunity to diversify the international equities allocation of their portfolio to include exposure to small and mid cap stocks. The Fund provides investors the opportunity to benefit from the Manager's unique and disciplined investment process that seeks to take advantage of inefficiencies in the market to outperform the relevant market index over the long term.

The ETMF structure provides investors daily liquidity through the ASX with the appointment of a market maker ensuring the Fund trades around the NAV. The ETMF structure also provides high levels of transparency with the portfolio holdings published on a quarterly basis in addition to the iNAV, the intraday NAV, which is published on the Manager's website (www.vaughannelson.com.au).

Although we note, given the global mandate there is expected to be little movement in the NAV during the Australian trading day. The Fund would be appropriate as part of the capital growth allocation of an investors portfolio with the Fund seeking to deliver capital growth over the long-term with distributions intended to be paid on an annual basis in the event there is income and realised capital gains available for distribution.

The Fund has paid no distributions to date.

IIR has an Investment Grade rating for VNGS. The Fund is still developing a track record with the Fund now having a track record of over two years and the strategy having a track record of over four years. The Fund is designed for long-term investors as is highlighted by the longer-term return objectives of the Fund, being outperforming the benchmark index on a rolling five year basis.

Since listing, the Fund has not achieved its performance objective with the Fund not having a sufficient track record to determine if it will meet its return objectives over the long-term. While the objectives of the Fund have not been
met to date, the Manager is implementing a strategy that has been successfully employed in the US markets for over two decades.

We view the Manager and its processes favourably and will be looking for the performance of the Fund to start to reflect the characteristics that we expect from the strategy.

For more: see the document attached (logon first).

Independent Investment Research, "IIR", is an independent investment research house based in Australia and the United States. IIR specialises in the analysis of high quality commissioned research for Brokers, Family Offices and Fund Managers. IIR distributes its research in Asia, United States and the Americas. IIR does not participate in any corporate or capital raising activity and therefore it does not have any inherent bias that may result from research that is linked to any corporate/ capital raising activity.

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