Q&A with Alan Kohler: WQG vs WCMQ

Source: Intelligent Investor
By Alan Kohler

Question

Thanks for the WCM interview. Am I right in thinking that in view of the present discounts of WCM to published NTA this will currently be a preferred vehicle to invest in compared to WCMQ?

Answer (by Alan Kohler)

WCM Investment Management has two listed vehicles in Australia. The code for the LIC is not WCM it is WQG. And as you say, that is trading at a discount to NTA of 11%. The other one you mentioned, WCMQ, is an active ETF. They’re just two vehicles into the same portfolio.

The portfolios of WQG and WCMQ are exactly the same and the portfolios are run by WCM Investment Management in the US. They’ve been around a long time, they’re a perfectly respectable large US fund manager. They run global growth funds and the business in Australia is run by the Switzer Group, it’s called Contango. That’s Peter Switzer’s business and his son Marty runs the actual operation here. They don’t run the money, WCM in the US runs the money. They kind of distribute the funds here and as I say they’ve got two funds, two ways into the portfolio. One is the LIC one is the active ETF. Now they’re quite different in a way even though it’s the same portfolio. Different strokes for different folks, in a way.

It does look like the better way into the portfolio is through the LIC since it’s at 89% of NTA. The price is currently 89% of NTA so is that a good way to go rather than the active ETF? Possibly, except… actually, I’d go probably because I rang Marty Switzer this morning and said, “What’s going on?” And he told me that they’ve got an options overhang. There’s a few options being exercised at the moment which is depressing the share price of the LIC which will be cleared over the next few weeks and that might result in the discount closing, so you’ll get a bit of a lift up in the share price at that point, probably.

The whole thing about buying LIC’s at a discount is that you need the discount to close in order to benefit from that, obviously. And sometimes, not that often, but sometimes a 10% discount becomes a 20% discount and you lose. That’s just something to bear in mind. If you don’t mind buying at premiums and discounts and having that kind of uncertainty around it that’s fine, do that. Otherwise, if you buy in an active ETF, which is what WCMQ is, there’s no premium or discount because what happens is they just adjust the price to reflect the NTA all the time, so the price always equals the NTA. You’ve got no uncertainty about that, you’re buying the same stocks, you’re just getting them at… you’re buying them at NTA and your only exposure is to the underlying assets of the fund.

As I say, up to you which you prefer but I think at the moment the LIC’s discount appears to be according to Marty, a bit artificially low. Get access to more insights, stock research and BUY recommendations for 15 days, start your free trial today.