One of the best listed investment companies (LIC) on the ASX in my opinion is WAM Research Limited (ASX: WAX), operated by the high-performing Wilson Asset Management investment team.
A LIC’s purpose is to invest shareholder money into other shares it thinks are good opportunities.
WAM Research invests in undervalued growth companies where the investment team believe a catalyst could send the share price higher. It usually targets businesses that are industrial in nature.
It just revealed its monthly performance for August 2018, it showed a return of 2.9%, outperforming the ASX All Ordinaries Accumulation Index by 1.2% before fees and expenses.
But, one month isn’t significant – it’s the long-term that counts. Over the past seven years it has returned an average of 19.3% per annum, outperforming the benchmark by an average of 9% per annum during that time.
The strong performance has been achieved by WAM Research despite holding a high level of cash throughout that time period. Whilst the cash level has dropped in recent months, it still had 23.3% of the portfolio as cash at the end of August 2018.
One of the attractive features of WAM Research is that it pays out a lot of the returns generated as a growing dividend. Its dividend has grown each year since the GFC and it currently offers a grossed-up dividend yield of 8.1%.
So, despite seemingly being a strong dividend candidate its underlying portfolio is actually very growth-focused. It’s just that the growth is regularly paid out by WAM Research as cash.
The main thing holding me back from buying at the moment is the current 27% premium to the pre-tax NTA. This is a very hefty premium to pay! It’s usually better to find investments trading at a discount to their underlying value.
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Motley Fool contributor Tristan Harrison owns shares of WAM Research Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.