Pengana flags dividends for years amid ‘absolute desperation’ for yield

Pengana made its pitch four months after listed investment companies made headlines over their fees structure. The Australian Securities and Investments Commission warned Treasury in January that dozens of high-risk, low-performing LICs were being sold to retail customers for conflicted commissions. The warning prompted Treasurer Josh Frydenberg to launch a review into the sector.

Mr Pillemer said LICs had been unfairly painted with the same brush.

“All LICs are different. Sometimes the market and the media don’t make enough of a distinction between LICs, they just dump them in the same bucket,” he said. “Our managers have been fantastic, we have made money for investors this year, we were up nicely for investors. We did very well in the market crash in March.”

The fund’s investment portfolio delivered a return of 8.2 per cent in the 10 months to April 30, beating the global share benchmark return of 2.4 per cent.

Tribecca Investment Partners senior equities analyst Jun Bei Liu said there was often a discrepancy between the share price and the net asset value of the fund, and what managers do to close that gap could create conflict of interest.

“The track record of management is what will distinguish the better LICs from the poorer ones,” Ms Bei Liu said.

If managed properly, LICs could provide investors with a flexible investment option, especially in a time where there was desperate demand for dividend paying stocks, she said.

For an LIC to pay a fully franked dividend it must either have generated sufficient profits or tax in the tax-paying period, or have sufficient cash reserves, with Pengana saying it will be able to lean on its cash buffer and dividends from the global industrial companies it invests in.

“If you are an LIC that is active and you’re constantly looking at buying and selling in your portfolios, you will consistently be generating a profit and paying tax on that. Once you’ve done that, you can pay your franked dividends,” Mr Pillemer said.

“If investors understand this, get their heads around it, they can use these stocks in their portfolios to get yield paying, fully franked exposures and almost substitute the bank stocks,” he said.

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