Investing Recommendation: Do not invest. Performance since NAOS took over has been terrible and the history of this LIC and investor sentiment will overhang the price even if NTA returns outperform for a period.
Trading Recommendation: Short term only if discount is at least 3% greater than recent (1 to 6 months) average. Minimum discount advised is 18%.
Actual Performance:
In its Feb 2019 monthly report NSC reports the following performance:
Using Excel's CAGR formula I've computed the actual NSC Inception to Date (ITD) performance using the end-of-month NTA from when NAOS commenced ($1.04), 28 Feb 2019 Pre-tax NTA ($0.75), Dividends (8 cents) and Franking (3.43 cents).
NSC performance since NAOS took over:
Actual Compound Annual Growth Rate for Pre-tax NTA: -13.01%
- NAOS reports -11.77% before fees and interest. Either way, it's shocking.
Actual TSR Comparison with relevant benchmark ETF:
Using Sharesight and a performance report period of 31 Oct 2017 to 28 Feb 2019 you can accurately determine like-for-like Total Shareholder Return annualised performance between investing in NSC when NAOS took over and investing in the closest index fund (VSO):
- NSC has an annualised TSR of -10.21%
- VSO has an annualised TSR of 8.24%
Performance Impact on NTA Discount/Premium:
The enormous difference between the VSO TSR of 8.24% and NSC's -13.01% NTA CAGR has driven the discount down to ~15% and the NSC TSR to be -10.21%. And that's with virtually all investors not having done their own NTA CAGR calculation and not knowing the actual annualised gap between NSC's NTA CAGR and VSO's is over 21% not 16.75%. Relative to other LMIs this discount should be much greater but once discounts get close to 20% for LMIs with NTA over $100m they tend not to increase as rapidly.
Selected Brief Insights:
Given its management fee of 1.265% (includes GST) and 20% outperformance fee I expect NSC to continue to underperform and the discount to continue to widen. Mean reversion is often misunderstood and won't help NSC outperform. There are now alternate small cap LMIs like OPH and WMI and I expect the NSC discount to increase steadily.
