Summary: At 30th June 2023, you could buy $1 worth of Salter Brothers Emerging Companies LIC (SB2) assets for just 73c. Geoff Wilson says buying a $1 worth of assets for 80c is usually a steal and indeed WAM Strategic Value has SB2 in its Top 20 holdings. 90% of SB2 assets are listed ASX equities or cash. So what's not to like? It turns out, SB2 is no ordinary LIC, and why it exists and who owns it really matters!
Details:
The aim of these "Cheat Sheets" is to reveal how difficult it is, even with genuine expertise, to outperform cheap index funds with CEFs in the long run. I reveal just one important but little known insight for each ASX CEF. It is not the only insight; nor always the most important one. I vary the insights to show how unnecessarily complex and hazardous CEF investing is. For detailed ASX CEF insights and expert services please use the Contact page.
1. SB2 Key Facts
30 June 2023 Discount:
Share Price: $0.64. Pre-tax NTA: $0.874. Discount: 27%
2. SB2 Key Insight
- SB2 was actually set up for overseas clients of the Australian Significant Investor Visa (SIV) scheme. While not disclosed in its presentations, you will find a clue in Monthly Reports stating:
"The investment strategy was compliant with the emerging companies’ investment requirements of the Australian Significant Investor Visa regime for the period ending 30 June 2023."
- Salter Brothers SIV clients do not obtain their complying emerging companies exposure via buying SB2 on the ASX. They are fed into the fund via the unlisted Salter Brothers Series G Fund which owned ~90% of the shares at SB2 launch and gradually reduces its holding. Thus, the main retail shareholders of SB2 become future sellers when they no longer need to meet the SIV requirements or can meet them an alternate way.
- There are virtually no current, natural retail buyers for SB2, only occasional larger investors (e.g. funds) attracted by trading the discount when extreme.
- The Productivity Commission found the SIV scheme's economic benefits "are negligible, and any benefits accrue mainly to those visa holders and to fund managers." It's more than possible the Labor government will close or radically tighten the scheme and this may lead to adverse consequences for SB2's reason to exist and buy/sell flows. Salter Brothers Asset Management has also been sued by investors over the illiquidity of some of its SIV fund vehicles. See: > Link1, > Link2, > Link3; Link4
