The Switzer Report: When do you pick a good LIC to buy?

Over the past year, I saw my ETP (Switzer Dividend Growth Fund or SWTZ) do what a LIC at a discount can do. SWTZ listed at $2.50 and, with all the market fear around, went as low as $2.23 on December 21 last year. If someone had bought it at that time primarily for its yield (which is its main function), they would’ve pocketed a capital gain of 12% plus three payments, totalling 15.3 cents or nearly 7%, with one more quarterly payment to go!

This table shows an exceptional year for yield for SWTZ, which was helped by the Bill Shorten impact on companies that unloaded their franking credits. But even without these ‘gifts from Bill’, a fund like SWTZ should be a 5-6% dividend payer before adding in the tax pluses from franking. That’s its goal.

The income case

I’m sure some smarties will now be looking at LICs that pay good income because of the low level of interest rates on term deposits. For those who can live with the turbulence of a stock market, challenged by Donald Trump, his trade war, recession headlines out of the bond market and all the political shocks, such as Brexit which are becoming economic shocks, a collection of income-paying funds could be the way to go.

One LIC trading at a discount is the Contango Income Generator (or CIE), which closed the end of July trading at 81.5c compared to an NTA of 96.1c. While it’s overall share price performance has been disappointing, its yield delivery has been good (returns below to 31 July 2019).

CIE LIC Returns

I can see the good sense for someone who’d call themselves income-chasers to invest in a number of income-promising funds such as SWTZ, CIE and the likes of Vanguard’s High Yield fund, VHY, which has had a nice run lately.

This is an excerpt from an article in the Switzer Report. Read the full article on the Switzer Report here.