Bell Potter LIC Weekly: Understanding Time Period Bias

By William Gormly | More Articles by William Gormly

Understanding time period bias

When analysing investment performance we will report across defined time periods – monthly, quarterly, yearly etc. This structure of reporting allows for comparability across LIC/LITs and alternative investment vehicles, including relevant benchmarks. However, focusing solely on a performance data as at a specific point in time can lead to a time period bias in analysis. This is apparent in LIC/LITs more so than other investment funds due to the closed-end nature allowing the investment vehicles to trade at premium or discount to the underlying net asset value. Analysis of the 70 LIC/LITs in this report shows that discounts display seasonal characteristics, widening out in the months leading up to June before tightening into December. Yearly tax-loss selling has been a key driver of this, as well as portfolio rebalancing. In 2019 it was the Federal election that was the main driver for the historical wide mid-year average discounts.

So, why does this all matter? We’ve seen that drawing a conclusion on the performance of the overall sector as at June 2019 would be misguided, as you would be painting a fairly bleak outlook on the sector. In the next 6 months 30 of 36 domestic mandated LIC/LITs outperformed their relevant benchmark at an average of 7.9%. In a similar way, drawing a conclusion from that short timeframe can lead to imperfect decisions. Performance is reported in a variety of ways, relying solely on fixed date performance figures impairs investor decision-making.

For full details refer to the detailed report below or click here to download your copy.

William Gormly

About William Gormly

William Gormly is an ETF/LIC Specialist at Bell Potter Securities. Will provides comprehensive coverage of the ETF and LIC sectors, producing a range of highly regarded reports covering investment fundamentals, asset class structure and cost, and the role of managed investments in portfolios.

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