Question 1: When looking at a listed investment company (LIC) “discount” or “premium” to NTA, is it calculated on Pre-tax or Post-tax NTA, and why? Some LIC’s have significant difference in pre and post-tax NTA.
Answer (by Peter Switzer): Under ASX Rules, listed investment companies are required to report both pre-tax and post-tax NTAs (net tangible asset values). The post-tax NTA provides for any capital gains tax that would be payable if the assets (securities) were sold, and is usually lower than the pre-tax NTA. If the LIC was wound up, capital gains tax on this basis would be payable – but given that this is such an unlikely situation, the pre-tax NTA is considered by most to be a better guide to the company’s value.
Calculations of premium/discounts are typically made in relation to the pre-tax NTA. This is the number that I look at.
Question 2: I am interested in your thoughts on the following funds: 1) MicroEquities Value Income Fund; 2) Lakehouse Global Growth Fund; 3) Lakehouse Small Companies Fund and 4) AIM Global High Conviction Fund?
Answer (by Paul Rickard). These are very different managed funds from different sectors – small cap, global and high conviction – with different investment objectives. Comparisons should be made with other funds in the same sector. There are thousands of managed funds – and companies such as Morningstar or Lonsec have a business of rating managed funds. These ratings are publicly available and can be a useful guide.
Question 3: With the US treasury bill yield starting to rise, does that mean that for at least the bond market, they believe the official interest rate will not be cut this September or cut less often this year? If so, are the bond and stock market still out of synch?
Answer (by Paul Rickard). I think that the recent rise in bond yields is more a case of an “overbought” bond market going through a natural correction. Expectations regarding an interest rate cut in the US next week haven’t changed – maybe further out they have been hosed down a touch.
Question 4: Is CSL expensive? Is this right time to buy that stock?
Answer (by Paul Rickard): There is no doubt that CSL is expensive. It is trading on a multiple of 34.7 times forecast FY20 earnings and 30.6 times forecast FY21 earnings. But, it is a great company and if it is not a core stock in your portfolio, it should be. Also, the time to get set is when others want to sell it – usually in a bit of market weakness.
According to the brokers, it is close to fairly priced – trading at a small discount to the consensus target price of $241.99.
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