Is Wilson’s WAM Leaders Ltd fund worth buying?

Wilson Asset Management’s much-hyped WAM Leaders Ltd (ASX: WLE) listed investment company (LIC) traded flat on its debut after hitting the ASX boards yesterday despite a heavily oversubscribed initial public offer.

The company raised $394.3 million from investors at an application price per share of $1.10, although this morning it is trading marginally below its pro forma net asset value backing per share of $1.088 after the maximum subscription amount was raised.

The LIC is expected to invest largely in stocks from among the S&P/ASX 200 (Index: ^AJXO) (ASX: XJO), although it will be index unaware and mandated to buy undervalued growth stocks in pursuit of market-thumping returns. It is not expected to draw too much from the Top-20 companies on the ASX as they offer less opportunity for mispricing or superior returns.

Within the Australian market Wilson Asset Management has a strong reputation and track record that means the fund is more likely than not to beat the market over the long term in my opinion.

However, investors should consider the impact of fees on any investment as the annual management fee is 1% of the net asset value and any outperformance delivered will be limited by a performance fee of 20% (pus GST) of the net outperformance of the S&P/ASX 200 Accumulation Index over a given time period.

Performance fees can seriously limit the upside for retail investors and are another good reason to manage your own investment portfolio where the only fees are brokerage fees of around $20 per trade and 20% of the gains on beating the index are not taken away from your investment returns.

The group’s boss Geoff Wilson has previously indicated his fondness for tech infrastructure stocks and I would not be surprised to see the likes of TPG Telecom Ltd (ASX: TPM) and Vocus Communications Limited (ASX: VOC) among the LIC’s larger holdings. Other classic growth stocks of a decent size like REA Group Limited (ASX: REA) and Challenger Ltd (ASX: CGF) I suspect will also be on the radar of the investment team at Wilson.

Other recent holdings favoured in Wilson’s actively managed fund include Myer Holdings Ltd (ASX: MYR), Blackmores Limited (ASX: BKL) and SG Fleet Group Ltd (ASX: SGF).

Generally investors should look to buy listed investment companies when they trade at a discount to their underlying net tangible assets. However, I suspect the strong demand for this LIC means shares will closely track the value of the net assets or even trade at a premium prior to dividends that can be paid on a fully franked basis as the LIC is incorporated as a company. I could not see any guidance as to how regularly dividends will be paid although every six-months is a standard time period for LICs like this once allowing for a period of grace to get fully invested.

The LIC could also trade at a premium to its underlying NTA if it posts a consistent track record of double-digit returns over the years ahead.

However, if you don’t fancy paying all the fees associated with managed funds you could invest in the below shares for brokerage fees as low as $10 with many online brokers.

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Motley Fool contributor Tom Richardson owns shares of Blackmores Limited, REA Group Limited, and Vocus Communications Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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