Wednesday, January 17, 2007

LIC understanding...

The listed investment company (LIC's) market can be a hard place to make money. It is usually good for long term investments and they are managed similar to managed funds except the security can be raded on the ASX market.

If you want to read up on how they work you can get access to a good introduction on the ASX webpage.

Essentially LICs provide exposure to a portfolio of investments on behalf of their investors and may include investments in Australian shares, international shares, fixed income securities, real estate, and unlisted companies.

The reason I am writing this post is in relation to a post I saw at Australian Investing on an investment into LinQ Resources Fund (ASX:LRF). It is stated that the the portfolio is following a purely technical way of trading LIC's and this must be applauded as a good concept. But unfortunately in the case demostrated he has bought the first purchase on false data. The NTA is not a discount of 31% at all and the reasons it is trading at such a high NTA is in fact due to options for directors. After options are taking into account the NTA backing of the fund drops from $1.53 to a$1.28. Looking into the options which are available they will all be taken up.

In this case the NTA backing has dropped from a discount of 31% to a discount of only 19%. This brings it more in line with the other funds but does mean it is no longer cheap.

LIC's are tricky creatures and the only one I am invested in at the moment is MMC Contrarian Limited (ASX:MMA) but I am not happy with the way they are heading. They are suppose to be a long term investor but have had unusually high turnover with no explanation. I will more than likely be out of this fund very soon.

So just remember when LIC's are involved ... buyer beware.

Good Luck Investing.

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