17-Feb-2020:  

Good morning,

The WAM Research (ASX: WAX) Board of Directors announced today a 152.8% increase in operating profit before tax to $14.6 million and a 159.3% increase in operating profit after tax to $11.0 million in its FY2020 half year results. The Board also announced a fully franked interim dividend of 4.9 cents per share, currently representing an annualised fully franked dividend yield of 6.6%*.

The fully franked dividend has been achieved through the solid performance of the investment portfolio since inception and the profits reserve available and is consistent with the Company's investment objective of delivering investors a stream of fully franked dividends. The Company's profits reserve at the end of the period was 30.1 cents per share and forms part of the net tangible assets.

*Based on the 14 February 2020 share price of $1.475 per share. 

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That was from an email I received this morning - from their Chairman and founder, Geoff Wilson.

Disclosure:  I don't currently hold WAX shares, but I hold WAM, WGB & WLE shares, plus BAF shares (BAF will soon also become a WAMG-managed LIC, with the management transition currently being negotiated).  I do occasionally hold WAX, WAA & WMI shares, just not at this point in time.  

The positives for WAX are that they have the largest profit reserve (at 30.1 cps) of any of their LICs, and that ALL of their holdings are research-based, as opposed to WAA which are 100% market-driven (active/trading positions).  WAM (their flagship fund - WAM Capital) is a combination of both strategies.  The research-driven investments have generally performed better, hence the larger profit reserve that WAX has, from which dividends are paid.  That level of profit reserve means that the next 3 years worth of dividends are already there - which provides a level of comfort around the dividend yield (of around 6.6%, fully franked) regardless of future performance.  However, after a poor FY19, WAX is back!  With a 150%+ increase in operating profit (both before and after tax) in H1 of FY20.  Every one of WAMG's six LICs have had a very good first half it seems.

The negative for WAX is that they continue to trade at a significant premium to NTA so you're paying over the odds if you want to jump on the ride now.  Their pre-tax NTA at Jan 30 was 121.47 cps and they're trading at $1.51 today.  That's a 24.3% premium to their last published pre-tax NTA which is right at the top end of the range across the LIC spectrum these days.  Most LICs trade at discounts to NTA, partly due to underperformance, but also because we've had so many new LICs hit the boards over recent years and they are now less popular (likely because so many of them have had performance that was a lot worse than expected).  The biggest 3 LICs in Australia are AFI, ARG & MLT and they tend to trade pretty close to NTA (often at a slight discount or slight premium but not at 20%+ premiums or discounts like WAM & WAX).  My WAM shares were bought years ago at much lower prices and I would love to hold WAX shares again, but I'm not buying at an NTA-premium of over 20%, no matter how good their dividend yield and most recent performance has been.

http://www.livewiremarkets.com/wires/wilson-the-return-of-global-growth

That's a link to a 23rd May 2019 article published this week on Livewiremarkets.com (Livewire) in which Geoff talks about what has happened over the past 6 months to turn him from being ultra-bearish to now moderately bullish ("My prognosis was wrong"). 

Each of Geoff's lead PMs (portfolio managers) also talk about their own views and discuss some individual holdings that they have within their own portfolios and why they like them (and why they hold them).  Those PMs are Catriona Burns (responsible for WAM Global, WGB), Matt Haupt (WAM Leaders, WLE), Oscar Oberg (WAM, WAX & WMI) and Martin Hickson (WAM, WAA & WMI).  [Note: Oscar is the PM of WAX - WAM Research, Marty is the PM of WAA - WAM Active, and they jointly manage WAM & WMI - WAM Capital and WAM Microcap]. 

Geoff is the CIO (chief investment officer) with the overall responsibility for the performance of the 6 LICs that they manage, but Geoff's role is more hands-off nowadays, having set up the investing framework, philosophy and rules, he sits in on the weekly meetings and monitors their progress, but he mostly leaves the stockpicking to those 4 now.  He has other things that keep him busy, like media and takeovers.

Their previous CIO, Chris Stott, has recently retired, but is still a director on the board of a couple of those LICs.

This Livewire article is mostly distilled from the presentations given at the recent WAM Roadshow that has been happening over the past fortnight around Australia's largest cities, but it's presented in a nice, easy-to-follow way, and does contain a couple of additional bits that have been added in.

Disclosure:  I currently hold WAM, WAA, WAX, WLE and WGB.  I have also held WMI in the past, and may well do so again in the future.  I've become a little concerned with the performance of Oscar and Marty since Chris left, especially over the December-January period when they seriously underperformed, especially with WAM & WAX.  I'm happy enough with Catriona and the WGB portfolio, and I think Matt is doing a good job with WLE, which is my largest holding currently.  It's interesting that the two Wilson LICs that I'm most bullish about (WLE & WGB) are both trading at NTA-discounts, while the ones trading at NTA-premiums are the ones that have performed the worst (WAX & WAM) more recently - and the ones I hold the least amount of shares in currently.  I sold most of my WAM & WAX - and all of my WMI - earlier last year when they were still trading at NTA-premiums of over 20% in the case of both WAX & WAM and I can't remember what WMI's NTA-premium was, but it was significant.  Those premiums have all since reduced significantly.  Ideally, buy good quality LICs when their outlook is bright, they have tailwinds, and they are trading at NTA discounts.  I would argue that only two of Wilson's six LICs tick all those boxes currently.

19-Nov-2019:  November 2019 Shareholder Presentation

Note: This Presentation is related to the WAM Group (WAM Funds) + FG (Future Generation) Funds November 2019 Australian Roadshow (which I'll be attending here in Adelaide next Wednesday) and covers all of WAM Group's 6 LICs:  WAM Global (WGB), WAM Leaders (WLE), WAM Capital (WAM), WAM Research (WAX), WAM Microcap (WMI) and WAM Active (WAA).

This one is for the Sydney leg of the roadshow, which includes their AGMs, but similar Presentations will be made at all of the venues they attend during the roadshow over the next couple of weeks.

May 2019:  WAX is the Wilson (WAMG) LIC with the highest profit reserve.  Geoff said last Wednesday (15th May 2019) that WAX had 28c per share in the profit reserve.  Their profit reserve is where their dividends are paid from, and the larger the profit reserve, the more sustainable the dividend is, and the more likely they are to increase that dividend over time, even if they are underperforming the market or their own benchmark - as they have done for the past 6 months.

WAX (WAM Research) is the only one of the six LICs that WAMG manage that contains 100% research driven companies (no active/market driven positions), and their SP has come down quite a bit over the past year due to both underperformance and also because their rediculous premium to NAV (which was over 20%) has now come back down to around 6% to 7% (based on Friday's close of $1.26, and their April 30 pre-tax NTA - of $1.17).

They are rising today (Monday 20th May) - as expected - since Labor have lost the federal election here in Australia - so their proposed changes to the refundability of franking credits is now off the table - but as long as you're happy to pay a single digit premium to NTA instead of a double digit premium (especially one that begins with a "2"), WAX look interesting here.