Investing Recommendation: From Mar 2009 to Mar 2019, DUI's NTA outperformed VAS by 2.05% annualised. Given its exceptionally low Total Expense Ratio it is investible at higher than average discounts. The limited franking credits accumulation compared to peers is one of few downsides to this fund. Labor's franking credits change will adversely affect all LIC's (DUI, AFI, etc) with large potential tax bills if they convert to trusts but this could also provide an attractive entry point.
Trading Recommendation: Trade when discount is at least 2% greater than recent (1 to 6 months) average. Minimum Pre-tax discount advised is 8% (before undistributed franking.)
31 Mar 2019 Discount/Premium: Pre-tax -8.72% Post-tax 7.37%
Actual NTA Performance:
DUI benchmarks performance in its annual reports. As of 30 June 2018 it reports slight outperformance over 10 years and 1.8% over 3 years:
Bell Potter's LIC Weekly Reports provide NTA performance data and have the following figures for the periods to 31 March 2019. Note: "Measurement of the LIC performance is calculated after all operating expenses, provision and payment of both income and realised capital gains tax and the reinvestment of dividends, and do not incorporate franking."
Using Excel's CAGR formula I've computed the DUI non-reinvested performance since Mar 2009 using the Pre-tax NTA as of 31 March 2009 ($2.42), 31 March 2019 Pre-tax NTA ($4.47), Dividends ($1.38 cents) and Franking (59.14 cents). Undistributed franking credits are ignored here but they aren't significant.
Actual Simple Compound Annual Growth Rate for Pre-tax NTA (non-reinvested): 10.29%
Actual NTA CAGR using Sharesight (divs reinvested)
First in Sharesight we turn on Dividend Reinvestment and set it to "Round down and track balance." Start NTA is $2.42. Then we enter a Sell trade at the end date (31 Mar 2019) at End NTA value (not share price).
- End Pre-tax NTA is $4.47
- Undistributed franking credits per share are negligible and not included (can frank ~50% of 1 year's dividend)
DUI's Comprehensive NTA CAGR from Mar 2009 to Mar 2019 is: 11.02%
- This is significantly higher than VAS at 8.97% which is partly due to the international holdings in DUI's portfolio but also other variations from the ASX300 that VAS tracks.
Actual TSR Comparison with relevant benchmark ETF:
Using Sharesight and a performance report period of 31 Mar 2009 to 31 Mar 2019 you can accurately determine like-for-like Total Shareholder Return annualised performance between investing in DUI and investing in the closest index fund to the benchmark. Dividends are reinvested for both DUI and Australian-listed index funds like VAS. Sharesight does not offer this for index funds (e.g. ACWI) listed outside Australia.
- DUI has an annualised TSR of 11.12%
- VAS has an annualised TSR of 8.97%
- ACWI has an annualised TSR of 10.62%
Performance and Risk Impact on NTA Discount/Premium:
DUI's 11.02% NTA CAGR is substantially higher than VAS's 8.97%. Consequently, its TSR reflects this outperformance with an excellent figure over ten years of 11.12%.
Risk-adjusted returns can vary but in this case there is a known small risk difference between DUI and VAS which is the international exposure.
Selected Brief Insights:
DUI has outperformed AFI, ARG, MLT, AUI, BKI and similar over all timeframes in the last 5 years. However, its portfolio generates less franking credits than most competitors and this limits the extent of franking credits returned, which also limits the dividends payable as there's much less value in paying dividends till they can be fully-franked.
In its Interim Report to Dec 2018 it states:
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After payment of the interim dividend, the Company will have a modest franking account balance which would fully frank approximately half the annual dividend at the current rate of dividend per share.
In its Interim Report to Dec 2018 it states:
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After payment of the interim dividend, the Company will have a modest franking account balance which would fully frank approximately half the annual dividend at the current rate of dividend per share.
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Management and Performance Fees:
Management Fee
Internally managed
Performance Fee
none
Extracts from most recent Annual Report, Interim Report and Prospectus:
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Operating expenses, excluding borrowing costs, represented 0.12% of the average market value of the portfolio, the same as last year. Including the management fees of the international exchange traded funds and Small Cap managed funds in which the Company is invested, the expense ratio was 0.15% which was the same as last year.
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Fee Comments:
For FY2017-18 Total Expenses before tax were $1.134m. There are no performance fees. NTA was $798.271m at 30 June 2018.
Total Expense Ratio w/o Performance fees = 0.142% of end NTA
Total Expense Ratio inc Performance fees = n/a
This Total Expense Ratio is exceptionally low and is the main reason for DUI's outperformance. It is refreshing to see an honest and complete picture of total expenses provided in the fund's own Interim and Annual Reports.
