WAM Capital Ltd (ASX: WAM) has long been one of the most prominent Listed Investment Companies (LICs) on the ASX boards.
One reason would be its monstrous size, with a market capitalisation of almost $2 billion. But since its inception in 1999, WAM Capital has carved out a reputation for itself that is rather different from other famous ASX LICs as well.
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WAM Capital: A different kind of ASX LIC?
The venerated Argo Investments Limited (ASX: ARG) and Australian Foundation Investment Co Ltd (ASX: AFI) have built a reputation over many decades as LICs that offer large, diversified portfolios of ASX shares offering steady dividend payments.
But WAM Capital instead went for a more aggressive investing strategy. This LIC doesn't usually do 'buy and hold' investing. Instead, it "provides investors with exposure to an actively managed diversified portfolio of undervalued growth companies". As well as "relative value arbitrage and market mispricing opportunities".
This strategy has worked very well for WAM Capital since its ASX debut more than 2 decades ago. According to Wilson Asset Management (the 'WAM' in WAM Capital), this LIC has managed to return an average of 16.5% per annum (before fees and taxes) since its inception in August 1999.
That's well above what the S&P/ASX 200 Accumulation Index has delivered over the same period (according to WAM, 8.7% per annum).
But year to date in 2021 so far, the picture certainly looks a lot less rosy. Take into account just WAM Capital's share price. We can see it remains down year to date, having lost 0.9% of its value since the beginning of January.
Now we won't be unfair to WAM Capital here. The LIC has also paid a hefty 7.75 cents per share dividend in 2021 back in June. That dividend is worth a trailing yield of 3.51% just by itself on WAM's recent share price (or 7.01% annualised). That would push it into positive territory for the year so far.
However, the S&P/ASX 200 Index (ASX: XJO) has seen gains of 12.37% in 2021. And that's not even including dividend returns. This means that, even if we include WAM Capital's dividend, it's still trailing the broader market over the year to date.
So why this underperformance?
Share price vs NTA
Well, it's not as bad as you might initially think. With LICs, there are normally two metrics we can look at to assess the company's performance. Those are share price appreciation (duh) and net tangible asset (NTA) appreciation.
See, LICs hold within them a portfolio of shares. Many investors like to look at the raw portfolio value, or NTA, of a LIC's portfolio, rather than its market-determined capitalisation. That's because a LIC can either trade at a premium or a discount to what its actual NTA is.
We see this in action with WAM Capital. As of 31 July, WAM tells us that WAM Capital had an NTA per share of just $1.89. Yet it trades today with a share price of $2.21. That means for every share you are paying $2.21 for, you are actually only getting $1.89 worth of underlying share value. In other words, WAM Capital shares are currently trading for an almost 17% premium to what its underlying shares are worth.
Now although WAM Capital's share price has depreciated by 0.9% in 2021 so far, its NTA per share is actually up by around 5% between 31 December 2020 and 31 July 2021. But investors seem to have narrowed WAM Capital's NTA-share price gap rather than send WAM Capital shares even higher.
Why has WAM Capital trailed the ASX 200 in 2021?
So this premium to NTA that WAM Capital is currently exhibiting may be holding back its share price performance in 2021 so far. But even so, WAM Capital's NTA growth has still not managed to match the ASX 200's. There's nothing to blame but the company's investment portfolio performance for that.
No doubt investors will be hoping for WAM to rediscover its old ways and deliver some market performance in the months and years ahead. At least shareholders can treat themselves with that ~7% annual dividend while they wait!
