Consensus community valuation
11-Sep-2024: WAM Leaders pre-announced their results and dividends last month - see here: WAM Leaders increases fully franked full year dividend [26-Aug-2024]
Here's their 2024 Annual Report.
Here's the reason they are my largest position currently in my largest real-money portfolio:
That and one other fact: That they have enough in their profit reserve to keep increasing those dividends for another 3 years at least (PR = 31 cps).
Today they released this: WAM Leaders FY2024 Full Year Results Q&A Recording.PDF
WLE closed today unchanged at $1.29, after trading up to $1.315 during the day. Their end-of-August NTA was $1.37/share (as shown above). So they're still available at a discount to their underlying net asset value (NAV, a.k.a. NTA - Net Tangible Assets). Not a huge discount but a discount nonetheless.
Website: https://wilsonassetmanagement.com.au/listed-investment-companies/wam-leaders/
Disclosure: WAM Leaders is currently my largest position; I hold 100,000 WLE shares. They are in my "income portfolio", the largest one I manage.
People often think that a LIC like this only does well when the market does well, but sometimes it can be a little counterintuitive, because when the market is doing well, everybody considers themselves an investing expert and wants to invest directly in companies themselves, and when things get rocky, people either go to cash or they stick their money into ETFs or LICs which means they are outsourcing that portfolio management for that portion of their investable capital.
Sometimes reliable dividend paying LICs can move to a premium in more turbulent market conditions when self-funded retirees and other people that need to maintain an income stream (like me at the moment) want to lock in that income stream.
26-Aug-2024: WAM Leaders increases fully franked full year dividend (.PDF file)
This one is currently my largest real money position (100,000 shares). As I expected, WLE declared a 4.6 cps dividend, in line with their large profit reserve and the fact that they've increased their dividends every single year since inception, and I expected them to do it again, and they did.
I hold WLE for two reasons. The first is income, with that dividend yield of over 7%, which is over 10% grossed up (so including the value of the franking credits; all their divs are fully franked). The second is large cap exposure.
I tend to not follow large caps too closely as there are already too many professional fund managers and analysts and brokers and journo's and all the rest following our largest companies, so what insight am I going to have over them? To make money I need to be right when others are wrong, so buying at a good price when the person(s) selling to me are thinking that they are making a good move by selling at that price.
Sometimes both are right, as in it makes sense for me to buy at that price, for me, and it makes sense for them to sell at that price, for them and their circumstances.
However most of the time, in simple terms, someone is getting the better end of that deal. And when it comes to large caps, I don't feel I have an edge with most of those companies, so I don't bother. I either steer clear of most of them or I outsource that to an ETF (or two) or to a large-cap LIC that is paying better-than-market dividends and has a history of outperforming the index.
WLE have some shorter term underperformance but their portfolio (before expenses, fees, taxes, etc.) has outperformed the index over 3 year, 5 years, 7 years, and since inception (which was May 2016). Those outperformance numbers are +2.2%, +5.2%, +4.3% and +3.6% respectively, so not massive outperformance, but a bit here and a bit there and it all adds up. Even after fees.
The main advantage is they had 29.5 cps in their profit reserve @ June 30, so they can pay this 4.6 cps divy (declared today, as I expected), another 9.3 cps next year (interim & final divs combined), then 9.4 cps the following year, then 9.5 cps the following year (that's for FY27) - and still have money left in that profit reserve - and that's if they do NOT make ANY profits between now and then, and of course they will make further profits, but it's a very healthy profit reserve when they have another 3 years' worth of divs already covered, even with modest increases to those divs every year, after they pay the one they declared today.
I only hold two LICs - WLE and WGB (WAM Leaders and WAM Global) who both have dedicated investment teams with lead portfolio managers who are not responsible for any other LICs - just the one LIC for each of them - and in Matt Haupt's case also the WAM Leaders open-ended fund as well, which has exactly the same strategy - so holds the same companies. I was able to buy both at discounts to their NTA, they both pay great dividends, they both have very healthy profit reserves that guarantee future dividends even if they seriously underperform during the next couple of years, and they both provide me with exposure to companies I'm not comfortable to invest in directly myself in a lot of cases because I consider them to mostly be outside of my sphere of competence (wheelhouse).
The downside risks are (1) that we get a global downturn or a sharemarket crash for any reason, and/or (2) one or both of those LICs underperform and drag the share price lower as their NTA falls. However, I want sharemarket exposure and one of those risks is going to be present whichever way I choose to get that exposure, even via ETFs, and the other risk is one I'm willing to take based on the two LICs' lead portfolio managers' track records and investment styles.
Catriona Burns and her team at WGB had already pre-declared their FY24 final dividend, to be paid in November, and it's going to be 6 cps, fully franked, which puts them on a 5.4% fully franked yield (or over 7.5% grossed up) based on their closing share price today of $2.22, which is just above what I paid for my WGB. That's a good yield for a global shares LIC listed on the ASX - and the franking credits are all from tax paid on trading profits as they obviously don't get any franking credits from their investee companies - as none of them are listed here in Australia or pay Australian tax. So it's rare to get good dividends from an ASX-listed Global LIC, but to have them fully franked as well is particularly unusual - but good! I no complain!
But back to WLE - who reported today. It won't always be my largest real-money investment, but it is today. LYL is second. GNG is third. WGB is fourth. RMS is fifth (across two portfolios, and they reported today and they increased their dividend by +150% and that was just one of many highlights). There are a few other gold companies coming up behind those ones in terms of postion sizes.
It might seem like I am overly focused on dividends here, but what I'm really trying to achieve is TSRs and TSRs include both dividends and capital gains/losses, and the dividends are often a lot easier to predict than the capital gains, especially with LICs that have good profit reserves. So, yeah, I'm back in two LICs for now. But my strategy can quickly change when new opportunities present themselves.
https://wilsonassetmanagement.com.au/listed-investment-companies/wam-leaders/
Scroll down for latest update.
April 30th 2019 Pre-Tax NTA: $1.2039 (ex-div).
April 30th 2019 Post-Tax NTA: $1.1769 (ex-div).
6 months on:
October 31st 2019 Pre-Tax NTA: $1.2522 (ex-div).
October 31st 2019 Post-Tax NTA: $1.2264 (ex-div).
October 31st NTA after tax but before tax on unrealised gains: $1.2471 (ex-div). NTA increase of just over 4% in 6 months, so around 8% pa (annualised). SP has been rising steadily since June. I hold WLE shares.
November 30, 2019: Pre-tax NTA for WLE was $1.3016, and the share price has remained 3 to 4 cents below that level for the past couple of weeks (to December 27th 2019). I spoke to Matt Haupt and Oscar Oberg during the November roadshow when they visited Adelaide and Oscar (who manages WAM, WAA, WAX & WMI, but not WLE or WGB, which are managed by Matt and Catriona) told me that he has been buying WLE and WGB shares himself ahead of his own LICs because they were both trading at discounts to their NTA and his LICs were trading either at premiums or at NTA - or close enough to NTA as to clearly NOT be bargains. He told me that just like Geoff Wilson himself, he (Oscar) likes to buy $1 worth of assets for less than $1, and you can still do that with WLE and WGB. I hold both of them.
22-June-2020: Update: WLE pre-tax NTA was $1.15 on May 30, 2020. Share price was $1.08 then, and is now a little lower at $1.065. WLE had 15.6 cps in their profit reserve - enough for 2.5 years of dividends. Cash = 8.9%. After WAM Global (WGB), WAM Leaders (WLE) has the next best discount to NTA of the 6 LICs currently managed by Wilson Asset Management (aka WAM Funds). Their flagship fund, WAM Capital (WAM) is trading at an NTA-premium of over 20% and WAM Research (WAX) has a NTA-premium in their SP that is between 35% and 40%, which is huge! I'm not going to pay those sort of premiums, particularly for WAM Capital (WAM) which has less than one half-year dividend in their profit reserve. WAX has a much better profit reserve but a they're also at a much higher premium-to-NTA.
The best value is currently WGB, then WLE, then WMI. I now hold all three (I sold my WAM today, and bought some WMI and more WGB - I already had a decent position in WLE).
BAF is also very interesting, and will be even more interesting when it becomes WAM Alternatives instead of Blue Sky Alternatives Access Fund - and their ticker code gets changed - probably to WAL (because WAA and WAF are both taken already). I also hold BAF shares.
Update: 21-Dec-2020: WLE's pre-tax NTA as at 30-Nov-2020 was $1.2896, so $1.29 is my new valuation for them. I do NOT currently hold WLE shares, having taken profits after the gap between the NTA and the SP closed up. In other words, I bought them at a substantial discount to NTA, then sold them at close to NTA, when the NTA was actually significantly higher as well. WLE's top 20 holdings (in alphabetical order) at 30-Nov-2020 were: ANZ, BHP, CBA, CSL, FMG, IAG, NAB, OZL, QAN, QBE, RHC, RIO, S32, SCG, SGR, STO, TCL, TLS, WBC, WOW.
18-Mar-2021: Update: 28-Feb-2021 before tax NTA = $1.37. After tax NTA = $1.31. Share price at the end of Feb was $1.43, and is now $1.52 (on 18-Mar-2021), so WLE has moved from a small discount to NTA to now being priced with a small premium to NTA in the share price. Nothing like the rediculous premium that WAX is trading at (+38.7% premium to NTA at end of Feb) or the more modest premiums of WAM (+14%) or WMI (+16.8%), but still at a small premium. Even WAM Global (WGB) was trading at a small premium (of +4.8%) to NTA at the end of Feb, and I can't think of any other globally focussed LIC (an ASX-listed investment company that invests in companies outside of Australia) that is currently trading at an NTA premium, so that's quite a feat!
In fact, the only LIC that WAM Funds manage that was NOT trading at a premium to NTA at the end of Feb 2021 was WAM Alternative Assets (WMA), which had a before tax NTA of $1.10 and closed the month at $0.995, being a 9.5% discount to NTA, which is a lot less than the big discount they were trading at prior to WAM Funds taking over the management, and that was fairly recent, so in time they may also end up trading at an NTA premium as well. However, they also might not, because of the very nature of the assets they hold, and the market's perception of the margin of error that may need to be factored in to their valuations of those assets. A lot of WMA's assets aren't trading daily on an exchange like company shares are, so the valuations are a little harder to work out, and for that reason it is quite possible that a 10% discount - or thereabouts - might be as good as it gets. We shall see.
But back to WLE - WAM Leaders - Matt and John (and their team) are doing a great job with this fund, and the share price reflects the underlying portfolio performance. It's all good. Wish I was still holding them actually...
04-Aug-2024: Update:
WLE will probably release their July report tomorrow (Monday 5th August 2024) however I'll take a stab and say their before-tax NTA is probably worth around $1.39, based on their NTA at the end of June (see here: WLE-June-2024-Investment-Update.PDF) of 133.60 cents ($1.336) plus the market (the ASX200 index or XJO.asx) rose +4.17% in July (from 7,768 close on June 30th to 8,092 close on July 31st), so 133.60 cents + 4.17% = 139.17 cents or $1.39.
WLE is now my largest position in my largest real money portfolio, with 100,000 WLE shares held in that portfolio, bought at $1.27 two Friday's ago, 26-July-2024. I like their dividend yield and the fact that they've outperformed their benchmark index over 3 years, 5 years, 7 years and since inception (before fees), and have paid more in dividends than people would have received by investing a similar amount in an ASX200 tracker (ETF). They also have a healthy profit reserve with more than 3 years' worth of dividends in there. They have also raised their dividends every single year since inception. The dividend yield at my buy price of $1.27 (and they closed on Friday only half a cent above that, at $1.275) is 7.24% plus franking, so over 10% when grossed up to include those franking credits. This is based on WLE paying a 4.6 cps final div, the same as their interim div, so 9.2 cps/year.
WLE have underperformed the index over the past year, hence the premium to NTA came out of their share price and they have traded at a small discount to NTA, which is why I have been attracted to them now, that and the dividend yield. But they have outperformed over all periods from 3 years upwards and their profit reserve allows them to maintain or even increase dividends even when they have a bad year.
So, the reasons I'm back in are:
- The dividend yield of over 7%, or 10% grossed up, and all fully franked dividends.
- The discount to NTA. It's small, but it's better than paying a premium.
- The exposure to large caps that I don't follow closely, so happy to offload that part of my market exposure to Matt Haupt at WAM Funds as he has a track record of beating the index and building up good profits and paying out top notch dividends.
I also hold WGB (their global LIC) for (a) global sharemarket exposure with active management and (b) good rising dividends, fully franked, with an even healthier profit reserve that covers over 5 years worth of div's: See here: WGB-June-2024-Investment-Update.PDF.
So - basically both bought at discounts to NTA (/NAV), both paying good above-market fully franked and rising dividends (WLE's yield is higher than WGB's yield however) and both give me exposure to market exposure that are not my forte - i.e. Australian large caps and overseas listed companies.
I do not hold any other LICs. In terms of WAM Funds other LICs, I don't like paying premiums to NTA, plus WAM Capital (WAM) has bugger all in their profit reserve so will continue to struggle to maintain their dividends let alone grow them - they haven't raised their dividends since 2018 (so have only managed to maintain it at the same level for the past 6 years) - and WAX have run out of franking credits and had to reduce their franking percentage.
So that's why I like WLE right now.
https://www.asx.com.au/investors/investment-tools-and-resources/asx-on-demand
WAM Leaders: Investing in large cap companies with compelling fundamentals
Recorded in July, posted to YouTube two days ago, on Friday 2nd August 2024.