LIC Portfolio Update

Welcome to the first portfolio update of the Australian Investing Blog's LIC Portfolio (read more about it's origins here).

I am making the first purchase for the portfolio. I am using the NTA figures from the end of November 2006 as the December figures aren't available yet.

The first purchase is LinQ Resources Fund (ASX:LRF). The discount to Net Tangible Assets after tax of LRF was -31.79% at the end of November. I will be buying 4,878 shares of LRF at today's closing price of $1.025 for a total of $4,999.95.

The following is taken from the company's website.

LRF is an actively managed resources fund, which specialises in investments in small to medium resources companies both in Australia and overseas. The Fund may invest in companies at all stages of development from exploration through to production, however the Fund typically focuses on investments in companies that are in the later stage exploration and economic evaluation phases, between discovery and completion of bankable feasibility studies. Companies in these stages are often valued substantially lower than producers. The Fund aims to provide both yield and capital growth for its investors.

The website was experiencing technical difficulties when I looked at it so I couldn't delve any deeper than the first page. However, looking back over the LRF's announcement to the stock exchange over the past year, there does not seem to be anything untoward.

Although this is basically a mechanical exercise, I wanted to make sure there were no skeletons in LRF's closet. While my analysis was far from comprehensive, there appear to be no drastic problems with the company. The discount to NTA is probably a function of the large amount of un-invested funds, and investors looking through the resources cycle and maybe allowing for a loss in value for some of LRF's holdings.

This post should not be considered investment advice. This portfolio is hypothetical in nature. Professional advice should be sought before making any investment decision.

Sample LIC Portfolio

I have decided to run a sample portfolio of Listed Investment Companies starting in this the new year. I first had the idea in a previous post on Listed Investment Companies. The basic premise behind the portfolio is that a group of investment companies bought at a discount to their net tangible asset backing would, over the long term, provide a good return.

The mechanics of this exercise are quite simple.

• Once per month, the Listed Investment Company trading at the steepest discount to it's lasted reported net tangible assets per share will be purchased, and the one with the smallest discount (or greatest premium) will be sold.
• There will be 8 companies included in the portfolio.
• All companies will have equal weighting.
• All LIC's must be listed on the Australian Stock Exchange.

As with the Australian Investing Sample Portfolio, the following should be noted:

• It is a sample portfolio only. Any trades which occur are theoretical in nature. They do not represent real trades.
• Brokerage costs will be ignored. This is to keep the exercise simple.
• Tax on both capital gains and dividends will be ignored. Again, this is to keep things simple.
• There will be no interest taken into account for un-invested funds. This will penalize the performance of the portfolio until it is fully invested, but will simplify things once again.
• Any trades which take place should not be treated as recommendations. Idependent advice should alway be sought.

The portfolio will start with $40,000 (to keep the maths simple). The trades will take place around the middle of each month after all of the LIC's for reported their NTA for the previous month.

Stay tuned for the first purchase.