Bell Potter LIC Weekly: Macroeconomic activity and two equity LICs to watch

A sustained economic recovery is starting to occur, with Australian GDP rising 3.1% in seasonally adjusted chain volume measures over the quarter, generally supported by COVID-19 restrictions easing in Victoria, which resulted in state specific household consumption rising by 10.4%. The consecutive positive result for the economy is also reflected in through the year results, which improved from -3.7% to -1.1%. The terms of trade (ratio of export prices to import prices) rose 4.7% off the back of higher export prices, and in particular iron ore. The Reserve Bank of Australia (RBA) also held the official cash rate at 10bps, opting for unconventional monetary policy though a $200bn bond purchase program designed to further stimulate economic activity. The announcement of $4bn daily state government bond purchases on March 1st helped retract the increasing yield on 10-year Australian government bonds, which decreased to 1.67% following the news. Yields had reached 1.92% on February 26th when bonds were sold off.

Tribeca Global Natural Resources Limited (TGF) remains well placed with commodities looking relatively attractive. The investment portfolio is well-rounded with exposure to precious metals, battery metals and diversified mining. The Manager’s core belief is that through the cycle, the actively managed, long-short approach to the sector will generate superior risk adjusted returns versus indices, ETFs, commodities and equities. Net exposure was ~120% as at 31 January 2021. WAM Leaders Limited (WLE) held an active weight of 6.9% and 0.8% for Financials and Materials respectively, as at 31 January 2021. Financials may be beneficiaries of a steeping yield curve through the inherent borrow short, lend long model, on which a net interest margin is achieved. Cash flows are also consistent through time, as opposed to Technology and Health Care, where profits are generally further out in the future and become less valuable in present day terms (continued in report).

Bell Potter’s Indicative NTA tracks the ‘indicative’ movement of a LIC’s underlying NTA each month by monitoring the percentage movements of the disclosed holdings and using an index to track the movement of the remaining positions. The Indicative NTA works best with LICs that have a high percentage of investments concentrated in its Top 20, regular disclosure of its Top 20, lower turnover of investments, regular disclosure of its cash position and the absence of a performance fee. We have also included an adjusted indicative NTA and adjusted discount that removes the LIC distribution from the ex-dividend date until the receipt of the new NTA post the payment date. This report is published each Monday prior to the market open and is available on a daily basis. Intraday indicative NTAs will be available on request through your adviser.

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