Question of the Week

Question of the week – views on WAM and AUI

Co-founder of the Switzer Report
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Q. What are your views on WAM and Australian United Investment Company (AUI)?

We’re in pension phase with an SMSF and have 50% of our funds in equities. Of this investment, we have 50% in LICs and the other 50% in good dividend paying stocks. The only downside with LICs is that their dividend distribution does not reflect the dividend yields of their underlying stocks and is only moderate. We sold some of AFIC, AUI and Argo to invest in higher dividend paying stocks including WAM. What are your views? Thank you.

 

A. Thanks for the question.

WAM and AUI are very different companies. The former is largely investing in small caps and higher growth companies – the latter in the major (top 25) index stocks.

AUI’s investment record over the last three years is pretty disappointing, compared to AFIC or Argo  – and stock liquidity (as represented by the bid/offer spread) is not great. We would invest in AFIC or Argo in preference to AUI.

We are a fan of WAM (if used as a vehicle to invest in the smaller end of the market) – and the investment is weighted accordingly.

Potentially, you might have say 75% to 80% in the major mainstream LICs such as Argo or AFIC, or directly in a portfolio of major shares, with 10 to 20% in WAM and/or another smaller companies manager. With any manager of small companies, there is more “manager risk” – so we would be more inclined to split this component over a couple of managers.

We hope this helps.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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