By James Frost
Wilson Asset Management chairman Geoff Wilson has thrown down the gauntlet to critics of listed investment companies, saying the structures are more efficient and transparent than the alternatives, as his flagship investment vehicle unveiled a 168.4 per cent increase in profit before tax.
“It is a shame that the vested interests have attempted to tarnish the reputation of listed investment companies through illogical arguments and half truths,” Mr Wilson said.
Listed investment companies have attracted criticism from segments of the investment community because they allow financial advisers and stockbrokers to charge stamping fees, which start at around 1 per cent but can be as high 3 per cent of the capital invested.
Mr Wilson defended the unique characteristics of the structure – which allow the share price to trade at a premium or a discount to the net tangible assets – saying they were better than the opaque trust arrangements employed by managed funds, which can disguise tax liabilities.
“LICs are the superior structure for retail investors for a number of reasons and they do not possess the issues inherent in other structures, such as the unidentified tax burdens that trusts can deliver,” he said.
Critics of the vehicles say stamping fees are at odds with the Future of Financial Advice reforms which banned payments from fund managers to advisers.
They highlight the fees, combined with a string of recently listed and poor performing LICs that are now trading at significant discounts to NTA, as examples of why stamping fees should be banned.
Treasurer Josh Frydenberg has instructed Treasury to review the listed investment company and listed investment trust space with a directive to scrutinise the exemption for stamping fees.
Mr Wilson said critics were using selective examples and if stamping fees were removed it would simply entrench the positions of existing LICs.
“WAM Capital shares are currently trading at a 20 per cent premium to NTA,” he said. “We expect WAM Capital and our five other LICs will benefit from any removal of stamping fees on capital raisings, as it will limit new entrants into the industry.”
Wilson Asset Management’s WAM Capital holds $1.6 billion of investor capital. In the six months to December 31 the investment portfolio rose 8.9 per cent compared with the 5.3 per cent return from the benchmark S&P/ASX 300 All Ordinaries Accumulation Index.
WAM Capital has underperformed the benchmark over the most recent one- and three-year periods by a small margin. However, over five years it has delivered outperformance of 4 per cent and over 10 years outperformance rises to 5.7 per cent.
Since inception in 1999 WAM Capital has beaten the index by 8.1 per cent.
Among stocks that drove the performance over the recent period are EML Payments which rose 55 per cent, mortgage broker AFG which rose 73.3 per cent, cloud service provider Megaport which rose 64.5 per cent, and construction services company John Lyng Group which rose 51.6 per cent.
WAM paid a fully franked first-half dividend 7.75¢ a share.