Investment companies take plunge back to market
Over the past year, listed investment companies have returned 22 per cent on average. This has prompted Naos Asset Management, which oversees about $20 million in two unlisted funds, to test the waters.
It is seeking to raise up to $50 million for its Naos Emerging Opportunities Co, which will invest in emerging companies that lie outside the ASX 100 index but are not microcaps.
The Naos managing director, Sebastian Evans, said, "We can be 100 per cent cash, or hold up to 15 to 20 positions. It will be a high-conviction fund."
The fund will focus on poorly understood or overlooked stocks.
The chairman is the former Macquarie banker David Rickards, and another former Macquarie banker, Warwick Evans, is a director. The management and directors are putting $2 million of their own money into the fund.
"The rush for yield is on its way to reaching a climax," Mr Evans said.
Naos tends to avoid investment in the resources industry, and has recently been looking at sectors such as cloud computing, life sciences and digital media.
Contango Asset Management recently sought to raise as much as $200 million for a listed fund, although its more realistic target is likely to be less than $80 million.
The strong performance of listed investment companies over the past year has resulted in some trading at a premium. For example, Djerriwarrh and Mirrabooka trade at a premium of 21 per cent and 13 per cent respectively.
The three listed funds in the Geoff Wilson stable - Wilson Asset Management, Wilson Active and Wilson Research - trade close to net asset backing, as do Cadence Capital, Australian Leaders and Sir Ron Brierley's new vehicle, Mercantile Investment.
"Listed investment companies paying fully franked dividends have been rewarded," a fund manager said.
Frequently Asked Questions about this Article…
LICs have been performing strongly — the article notes an average return of 22% over the past year — and the typical market discount for LICs has been narrowing. That improved performance, plus some LICs trading at or above net asset backing and fully franked dividends being rewarded, has opened a window of opportunity for new funds to list on the sharemarket.
Naos Emerging Opportunities is a proposed listed fund being launched by Naos Asset Management to raise up to $50 million. It will invest in emerging companies that sit outside the ASX 100 index but are not microcaps, focusing on poorly understood or overlooked stocks.
According to Naos managing director Sebastian Evans, the fund can be 100% cash or hold up to 15–20 positions. 'High-conviction' in this context means it will run a relatively concentrated portfolio of stocks in which the managers have strong belief, rather than holding a large, diversified number of small positions.
The fund’s team includes Naos managing director Sebastian Evans, chairman David Rickards (a former Macquarie banker) and director Warwick Evans (also formerly with Macquarie). Management and directors are committing about $2 million of their own money to the fund, aligning their interests with investors.
Naos tends to avoid investment in the resources industry. The firm has been looking at sectors such as cloud computing, life sciences and digital media for potential investments.
Contango Asset Management recently sought to raise as much as $200 million for a listed fund, though the article suggests a more realistic target for that fundraising is likely to be less than $80 million.
Some LICs have been trading at premiums — for example Djerriwarrh at about a 21% premium and Mirrabooka at about a 13% premium. Other listed funds, including the Geoff Wilson stable (Wilson Asset Management, Wilson Active and Wilson Research), Cadence Capital, Australian Leaders and Mercantile Investment, are trading close to their net asset backing.
The article notes that listed investment companies paying fully franked dividends have been rewarded by the market. Naos’s Sebastian Evans also commented that the 'rush for yield' appears to be reaching a climax, implying that yield-hungry investors have been a factor in LIC price appreciation and valuation dynamics.
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