Argo Investments sells down Macquarie, raises stakes in ANZ and Wesfarmers

With a history dating back to 1946, this investment firm has stood the test of time.

Argo Investments (ASX: ARG) is a listed investment company (LIC) offering investors access to a portfolio that currently has investments in 98 different companies. Unlike many ‘new style’ LICs that have external management structures that often charge significantly higher fees, Argo can boast of having one of the lowest management expense ratios at just 0.18%.

Argo has a very sound track record of adding value for shareholders. Over the 12 months ending 30 June 2013, Argo’s net tangible assets rose from $5.50 to $6.52 and the underlying investment portfolio returned 23.6% compared with a 20.7% return from its benchmark. Meanwhile over the past 15 years, the portfolio performance has been 9.4% per annum compared with an 8.3% return from its benchmark, the S&P/ASX All Ordinaries Accumulation Index.

Argo is one of the giants of the LIC sector. As of 30 June, the company had total assets of $4.2 billion including cash reserves of $196 million, it also has no debt.

With 64% of the value of the portfolio accounted for by the 20 largest positions, it is natural that adjustments occur amongst these major holdings. During the financial year just ended, the single largest sale by Argo was a $21 million reduction in its holding of Macquarie Group (ASX: MQG). As the chart below shows, Macquarie’s share price rallied over 60% during the 12-month period and at 30 June Argo’s remaining holding in Macquarie was valued at $104.5 million, making the investment bank Argo’s twelfth largest position.

Argo’s management also seized the opportunity to ‘top up’ its holding in a number of companies in which it already has major stakes as well. Management purchased $32.1 million worth of the ANZ Bank (ASX: ANZ) taking the LIC’s total holding in ANZ to $255 million. ANZ, as of 30 June, was the second largest holding within the portfolio behind Westpac Bank (ASX: WBC).

The next largest purchase was diversified conglomerate Wesfarmers (ASX: WES). Argo purchased $20.6 million worth of stock with the closing value of its Wesfarmers stake reaching $218.3 million at financial year end.

argo
Source: Google Finance

Foolish takeaway

LICs such as Argo can be a smart way for investors to achieve a broad exposure to the stock market. With Argo’s long and sound track record of paying fully franked dividends – a full year dividend totalling 26.5 cents and a current share price of $6.93 has the firm trading on a 3.8% yield — and the firm’s record of outperforming the index, it is understandable why the company has attracted over 70,000 shareholders.

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Motley Fool contributor Tim McArthur owns shares in Macquarie Group.

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