The naked truth about Glennon Small Companies (GC1)

LMI: Glennon Small Companies (GC1)

Investing Recommendation: Do not invest. NTA and TSR underperformance has been appalling.

Trading Recommendation: Very short term if discount is at least 3% greater than recent (1 to 6 months) average. Minimum discount advised is 15%.


Actual Performance:

In its Nov 2018 AGM presentation GC1 reports an Inception To 31 Oct 2018 return of 12.17% (gross):

On its website it reports the following chart comparison of NTA performance to 31 Oct 2018:

Using Excel's CAGR formula I've computed the actual Inception to Date (ITD) performance using the Starting NTA ($0.971), 28 Feb 2019 Pre-tax NTA ($0.96), Dividends (11.75 cents), Franking (5.05 cents) and Option value at expiry (0.3 cents).

-
Actual Compound Annual Growth Rate for Pre-tax NTA: 4.42% 

- This is far, far below the most recent Inception To Date (actually 31 Oct 2018) NTA performance provided of 12.17% (gross)

- GC1's NTA was diluted by significant underwriting of options well below NTA


Actual TSR Comparison with relevant benchmark ETF:

Using Sharesight and a performance report period of 21 Dec 2015 to 28 Feb 2019 you can determine comparative Total Shareholder Return annualised performance between investing in the GC1 IPO and investing in the most relevant passive index fund (VSO):

- GC1 has an annualised TSR of 0.65%

- VSO has an annualised TSR of 12.62%


Performance Impact on NTA Discount/Premium:

The difference between the VSO TSR of 12.62% and GC1's 4.42% NTA CAGR has driven GC1 to a discount of around 10% and has meant the GC1 TSR is a negligible 0.65%. And this is with virtually no investors knowing the true Inception To Date NTA performance is so low.

When the abysmal NTA and TSR returns become better known I expect GC1 to drop to even greater discounts. Based on the evidence it is a dangerous LMI to hold for anything except the very short term at big discounts.