On the one hand, it’s regrettable that it’s come to this. This is an example of why we have market inefficiencies. That so many don’t understand the dynamics of LICs.
VG1 and VG8 are quite unique products for Australian investors. So many seem not able to stomach short term negative events/performance and/or appear to suffer uneven temperaments and/or have other agendas.
It’s quite plain and simple, as I see it:
- Their strategy outperforms the benchmark (
even after fees thatdon’trelate to the benchmark and also despite their low net market exposure)
over the long term - They’ve just had their worst year but since then the performance and discount reduction have been admirable
- I believe theirs is a superior product, but which has been tainted (transiently) by human cognitive biases that characteristically accentuate the recent past (being the same biases that reward market participants following periods of overperformance!).
I believe some have tried to confuse 2 separate points; the fees seem high and the 2 LICs are trading at a discount to fair value (i.e. NTA).
So essentially they are claiming that either the market discount is caused by the high fees (i.e. that even in spite of any potential attractive performance, it is not deserving of a fair market price because the returns are more than offset by fees that are too high), or the corollary, i.e. that because of the LIC’s current trading at a discount, the high fees are (no longer) justifiable.
These lines of thinking are illogical.
Whatever the fee structure, what matters (apart from the route, i.e. risk, taken to achieve those returns) is the net result (i.e. what’s left for investors after fees). On this, investors are ahead.
The ultimate return, as a shareholder, however, does depend on how it trades on the market. This topic has been covered by VGI in multiple media now as well as by others including myself. In short, VG1 has traded at fair value, sometimes at a premium to NTA and at other times (such as recently and currently) at a discount to NTA.
The reason for the recent discount to NTA is quite likely and fairly evidently due to recent adverse events and thereby not certain to continue indefinitely.
It’s disingenuous to attempt to link the fee structure with the current SP discount, especially when the fee structure is manifestly reasonable and justified (i.e. by both NTA performance and global industry standards).
The events that led to a reversal of the premium into a discount was IMO a great buying opportunity rather than a reason to sell.
I do feel for those who only bought VG8 at IPO as they are sitting on a small paper loss ATM. However, buying at fair value (as opposed to a discount to perceived intrinsic value) has to be a long term investment. No one can expect to be able to trade in and out of equity investments at a guaranteed gain over shorter time horizons, especially when not having bought at deep discounts. There was never any intention that SHs would be able to buy in in order to sell out a year later at a profit. As expected, the prospectus did clearly state the opposite.
Those selling VG1 and VG8 must have rocks in their heads!
I’m glad the managers are buying back their own stock as apart from the obvious contribution to strengthening the NTA and closing the SP discount to NTA, it’s removing numbskulls from the Register.
The longer this continues and the more shares these ignorami sell, the better, IMO, as it’s reducing future selling pressure on market for both LICs whilst increasing shareholder value concurrently.
If investors backed VGI based on their actual performance, on what grounds would they not continue to do so?
I do agree VGI have probably been forced to learn some lessons, specifically with regard to shareholder engagement (and have incurred some costs no doubt). This will be positive for their product offerings though into the future and all will benefit from the changes they have been forced to make. We have all learnt from the experience!
In relation to ASX:WAR and looking at Geoff’s 4 tenets of responsible LIC management, VGI are ticking all 4 boxes and kicking further goals. Look at where they’ve come from, where they are currently and where they’ve indicated they are heading and the rapid improvements in SP performance and discount in the recent short term.
The combination of these dynamic measures with (hopefully) a continuation of historical performance projects an exciting future for VG1 and VG8 shareholders IMO, particularly from current market levels.
Furthermore, there’s really no reason, based on the facts available, that an ongoing positive investing performance wouldn’t lead to a further discount reduction or even deserve an NTA premium into the future.
It will be very interesting to return to these fora if this ever occurs and to read the comments that have been made. I, for one, am happy to stand by my words!
. Good luck, everyone.
(20min delay)