LMI = Listed Managed Investments. Types include Listed Investment Companies (LICs), Listed Investment Trusts (LITs) and Active ETFs. For background on LMIs see Independent Investment Research's LMI Quarterly Reviews.
What is LMI Alerts?
LMI Alerts is an independent blog from a specialist investor who invests only in ASX-listed LMIs or passive ETFs (e.g. VDHG, A200, VTS).
It focuses on insights and alerts into ASX-listed LMIs that you can't find via Livewire, LMI Broker and Research reports, or other mainstream sources and media.
There is an associated Twitter account: @AlertsLMI but it is rarely used at the moment.
Why did you create LMI Alerts?
The catalyst was discovering that while my LMI "investing" has outperformed passive investing benchmarks it has been with the huge handicap of most LMIs underperforming and some of them severely underperforming. A lot of niche skill and time has been needed to make LMI investing worthwhile for me. Consequently, the vast majority of LMI investors are clearly underperforming passive ETF alternatives.
LMI Alerts principally exists to document (primarily for my own investing) the various ways LMIs pretend to be worthwhile investments when in reality:
- For most LMIs, the performance comparisons with benchmarks are bogus. And most of their Total Expense Ratios are undisclosed or misleading underestimates. Management Expenses are often only a small part of the Total Expenses.
- Fees, costs and taxes are huge drags on most LMI returns and LMI reports never include true net performance versus a low-cost passive ETF alternative.
- Given performance fees are a massive drag on LMI returns the fact that many self-reported performance figures are inflated should be of major concern.
- There is huge variation in critical factors like Total Expense Ratios, NTA reporting, how performance fees are charged (e.g. whether they can ignore prior underperformance), and NTA-dilutive or accretive activities (options, capital raising, buybacks). It's essential to have reference info to compare between LMIs. If I have to write it down somewhere, I usually make it a public blog.
- The active investing game (of which LMIs are a subset) is rigged to suit the industry (fund managers, brokers, financial advisors, rating providers, finance media, and all other active investment service providers). If there is no obtainable, sustained alpha it's simply a zero sum game that just feeds off investor's capital rather than creating any value.
Personally, I expect to shift most of my long-term investing to low-cost, passive ETFs and use the analysis here to be much more selective in choosing LMI trading (< 6 months) opportunities. I may invest in some outperforming LMIs over the medium term (1 to 3 years) if purchased at a higher than average discount.
For long-term investing are any LMIs preferable to a low-cost, passive alternative?
Less than 1 in 20 have any chance of long-term alpha (after all costs) and you are very unlikely to be able to identify them in advance and time entry and exit for periods of outperformance.
The exception is that some LMIs are "sticky" in being slow to react - up and down - to NTA changes. If you have the time and interest to monitor major entry and exit opportunities then it is possible to invest in some of the LMIs in the Investible and Opportunistic categories below at opportunistic entry and exit prices.
There are a few LMIs I would invest in medium-term as they have total expenses (inclusive of all fees including performance) that are comparable to ETFs (less than 0.25%) and occasionally have a worthwhile TSR catalyst like recent outperformance but a higher-than-justified discount (e.g. DUI, AUI at times).
However, most investors should just put their funds in low-cost, passive ETFs. You can keep it ultra simple with Vanguard Diversified Index ETFs like VDHG. Or retain asset allocation and timing control but via low-cost passive ETFs like: A200, VAS, VGS, VAF, VGE, VSO, VAE, VTS, IVV, IOZ, IWLD, DJRE, QPON, FLOT, PMGOLD, IFRA
There are a tiny number of LMIs that don't have passive ETF alternatives. Some of these are worth considering as long-term investments: D2O
For shorter-term investing/trading which LMIs are worth considering?
I maintain ratings on all ASX-listed LICs and LITs via the below categories:
Flee: Pirate, Aurora and sub $25 million LMIs
Avoid: BST, FPC, ALF, BAF, GFL, NSC, IBC, BTI, CAM, KAT, 8EC, ZER, LRT, MVT
Short-term only: NAC, NCC, TOP, TEK, CD1, WAM, WAX, PAI, PIC, PMC, FPP, WAA, SNC, WHF, CDM, DJW, OZG, EGF, CIE, CBC, GC1, URB, EFF, TGG, AGM, AEG, AYF, QRI, WGB, EAF, MA1, TGF, LSX, LSF, MEC, FSI
Opportunistic: ACQ, WMI, CVF, EGD, GVF, VG1, NGE, RYD, PGF, PAF, EGI, EAI, APL, WLE, AFI, ARG, FGG, FGX, BKI,, PL8, WIC, PIA, SEC, FOR, QVE
Investible: D2O, ALI, OPH, HM1, MFF, WQG, MGG, CLF, CIN, MIR, AUI, DUI, AMH, MLT
You can see from the individual reports on LMIs why they fall into each category - it is a combination of true performance assessment, total expense ratio, how fair the fees are and whether performance fees will apply, how much priority is placed on the interests of current shareholders, and whether discount/premium changes provide opportunistic entry and exit points.
As I will take some time to publish individual reports on most LMIs, the above ratings are a useful quick reference.
Are outperforming LMIs worth buying at NTA or even a premium?
This requires detailed discussion about specific factors such as: how long the outperformance has occurred for, the likely source of outperformance (including the LMI's strategy which could be closer to buy-and-hold index-like), how likely it is that outperformance can continue, the Total Expense Ratio applying, whether performance fees will apply during the investing period, the history of the LMI trading at premiums, and whether performance-chasing by investors might currently apply.
But as brief examples:
MIR: No, looking at its holdings, strategy, and recent NTA performance I would not buy at a premium to Pre-tax NTA but the large prior premiums would influence me to buy closer to NTA than wait for a substantial discount that likely won't arise in the next few years.
OPH: Has a decent history of outperformance as an unlisted fund and a brief history of significant outperformance as a listed fund. However, my general skepticism of alpha applies and I would be wary at buying above NTA. Performance-chasing may drive OPH to premiums as it tops league tables so I would consider buying around NTA opportunistically.
Initial content focus is on True LMI Performance and Expense Ratio comparisons
I am currently focused on publishing accurate NTA and Total Shareholder Return (TSR) figures for most LMIs from inception to Feb or March 2019.
And on publishing true Expense Ratios (Total Expenses except interest and tax divided by Net Assets). For many LMIs, especially ones under $100m, the true Expense Ratio is much higher than indicated or expected.
Most LMI posts will be partial and intermittently updated for awhile or even forever. I will cover in more detail the LMIs of most interest to my current investing. To see a more detailed post and track the evolution in current methodology see CVF.
Comments, queries, feedback or commercial opportunities
I'm not seeking to widely disseminate this blog, build an audience, or establish a source of income.
LMI assessment and resultant opportunistic trading can be a valid source of alpha. As they say, those who can, do. Those who can't, teach. In investing, this translates to: those who have alpha, use it themselves. Those who don't have alpha, make money from investors in various other ways.
Currently:
- Comments are disabled and this is unlikely to change.
- Emails will be replied to selectively
Disclaimer
I do not have an Australian Financial Services Licence (AFSL) and none of the content of this website should be taken as constituting professional advice from the website owner.
The content of this site is general information only, not personal advice specific to an individual's circumstances.
Consequently, I am not liable for any loss suffered, whether due to error, negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.
The legal position of this site is similar to that of ASIC's MoneySmart website.
