5 Factors For Profiting From ASX LIC Takeovers And Wind Ups

5) Ongoing Fees & Costs / The cost of waiting for the catalyst – This can be a tricky one since often the LICs that are ripe for activism have high management expense ratios. I would just note here though if you are positioning for a possible takeover or wind up take the MER into account. You need to be more certain of this likely event occurring in a shorter time frame when dealing with LICs with high MERs. For instance if a 20% discount to NTA is closed over 4-5 years, and the MER is about 4% each year, the trade may not do so well.

Conversely, if you identify a target LIC with lean costs then this can substantially mitigate the risks with the overall strategy.

I would also add that identifying targets that have a high probability of being taken over or wound up is usually not easy. So ideally you want to find a LIC that you are comfortable owning even without this catalyst.

So what are some LICs that may not survive in their current form in the medium term?

I noted in the Rask article link that in recent times we have seen 8IP Emerging Companies Ltd (ASX:8EC), CBG Capital Limited (ASX:CBG) & Monash Absolute Investment Company Ltd (ASX:MA1) undergo significant changes, so which LICs may be next?

Please note this does not mean I necessarily think the below LICs are good buying opportunities. I just think they are vulnerable in the medium term to undergo change due to either wide discounts to NTA or underperformance, or both.

It is also by no means a full list. Just some LICs that quickly came to mind. With about 115 LICs out there I am sure there are others. Please feel free to comment on this blog post with others I haven’tmentioned.

This blog post will drag out forever if I write in too much detail below so will try to limit it to some brief key points in each case. All are at wide discounts to NTA that most shareholders do not like, so I won’t bother repeating that this is a factor below in each case.

Contango Income Generator Ltd (ASX:CIE) – Recently Wilson Asset Management have gone substantial. The performance of this LIC has been disappointing. Not sure if the IMA gives the manager much protection, since there was a lot of shuffling around in terms of the ownership of Contango after this LIC commenced.

Australian Leaders Fund Limited (ASX:ALF) – Last year we saw the manager transition two LICs to unlisted funds. Recently they announced a regular off market buyback plan to address the large discount to NTA. I would argue though they should be making this at least twice as large as planned, and that it should have happened a year ago.

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Disclosure: At the time of writing, I own the following LICs from the above list – ALF, TGG & BAF.

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