Invest like Taylor Swift? (and why I bought WAM Active, ASX: WAA)
A surprisingly interesting approach
Taylor Swift is best known for her sell out concerts. She has also pioneered ways for musicians to take control of their own royalties. And, she has some interesting ideas in relation to investing: focusing on listed investment companies that are trading at a discount.
This approach may be because her father worked at Merrill Lynch. Or it might be one of her own strategies. In any case, it is worth exploring.
Listed investment companies (LICs) invest in assets much like a managed fund would. They package them into a stock in which you can invest. This is akin to how exchange traded funds (ETFs) operate. They offer an “easy” way to invest in a broad basket of stocks. But, they can often involve management and performance fees. Further, they are sensitive to whehter the fund manager is competent. If the fund manager is bad, the LIC might underperform the market.
A LIC can trade at a premium, discount, or par to its estimated net asset value (NAV). The NAV is the estimated value of the LIC’s underlying assets. Many LICs trade at a discount for an extended period. This can reflect skepticism about the management team or the estimated values underlying the LIC. There is no guarantee that a discounted fund will move towards par. But, if it is trading abnormally below part, it might do so.
Taylor Swift’s approach is reportedly to buy discounted LICs, presumably waiting for them to approach par. She might then either (a) sell them as they approach par and/or (b) hold them to extract dividends. After all, some LICs have high dividends and those dividends can be tax advantaged. In Australia, they often attract franking credits. In the US, they can attract the long term holding tax rate.
Investors can identify discounted LICs relatively easily by using free online tools. For example, for Australia, investsmart and Bell Potter maintain such lists. In the United States, it can be slightly more difficult. You can obtain them from various databases and I have included an excel file with some NAVs for premium subscribers (these change over time, however).
Application and why I bought WAM Active (ASX: WAA)
