LIC portfolio update: adding more MFF

Post-Brexit, LIC investors should be looking for calm and quality.

Calm and quality. This is what you should be thinking as an LIC investor. Remain calm and remember the quality businesses the underlying managers are holding. There is a reason why we entrusted these managers in the first place, they do what a lot of investors cannot. They keep their head as everyone else is losing theirs.

Remember back to last year when the LIC model portfolio kicked off. The ASX200 dropped from 5272 points to as low as 4702. At this time, I had the fortune to talk with some of the market’s most experienced investors.

I spoke live with Geoff Wilson (WAM), John Abernethy (CAM), Tom Millner (BKI), Frank Gooch (MLT) and Justin Braitling (ALF). They all said the same thing about the volatility the market experienced. They were not selling, they were focusing on quality businesses and gradually deploying cash into those quality businesses.

If you have been following along look for weakness and chip away at your preferred LICs. Remember if you are looking at the last announced NTA you are looking at a historical number. If the LIC dropped 2-3 per cent on Friday in the panic, the underlying holdings did as well and therefore so did the NTA.

The LIC model portfolio holds a decent portion of cash and will be looking to average down. One position I have been wanting to add to is Magellan Flagship Fund (MFF) which currently sits at $1.77. It ticks the above mentioned boxes. Quality businesses are the focus and a calm, rational investment process drives it. Price to NTA lines up nicely as well.

MFF’s last reported NTA was $1.976. The dilution effect of the outstanding options was $0.137. Given the market movement of -3 per cent we assume the NTA has dropped by the same amount. Taking out the 3 per cent and the impact of the options we are left with an approximate NTA of $1.78. This is a discount to NTA of less than 1 per cent. But as mentioned in the past we are happy to pay a fair price for a fair manager. We will add 3 per cent to the position at tomorrow's open. 

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