Trading Recommendation: Short term only if discount is at least 3% greater than recent (1 to 6 months) average. Minimum discount advised is 10%.
Actual Performance:
In its Feb 2019 monthly report EAI misleadingly reports the following performance:
The fine print states: "before all tax provisions and after fees, includes the effects of the share buyback, and excluding the effects of option exercise dilution."
Using Excel's CAGR formula I've computed the actual EAI Inception to Date (ITD) performance using the IPO NTA after offer costs ($0.975), 28 Feb 2019 Pre-tax NTA ($1.0864), Dividends (1 cent), Franking (0.43 cents) and Option value at expiry (0.1 cents).
Actual Compound Annual Growth Rate for Pre-tax NTA: 3.6%
- This is a fair way from Ellerston's published Net ITD (p.a) of of 5.81%
- EAI's NTA performance includes dilution due to options being exercised. A large proportion of which were "underwritten" - not bought on-market but taken after expiry and offered to large and institutional investors.
- Unlike many LICs with options EAI's options traded in the money for much of their time so IPO investors may have recovered some value from them.
Actual TSR Comparison with relevant benchmark ETF:
Using Sharesight and a performance report period of 15 Sept 2015 to 28 Feb 2019 you can accurately determine like-for-like Total Shareholder Return annualised performance between investing in the EAI IPO and investing in the closest index fund to the benchmark.
- EAI has an annualised TSR of 0.98%.
- NASDAQ:AAXJ has an annualised TSR of 9.45%
Performance Impact on NTA Discount/Premium:
The large difference between the AAXJ TSR of 9.45% and EAI's 3.6% NTA CAGR has driven the discount down to ~10% and the EAI TSR to be 0.98%. And that's with virtually all investors not having done their own NTA CAGR calculation and likely assuming the true NTA return has been around 4-5%.
EAI would need sustained NTA CAGR performance matching NASDAQ:AAXJ to see this discount close. What is more likely is that its NTA growth will continue to underperform and thus the discount logically should increase.