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Why WAM Capital Limited bought more Wealth Defender Equities Ltd shares

WAM Capital Limited (ASX: WAM) is one of the country’s largest listed investment companies (LICs), however it doesn’t have an index-like portfolio like some of the other large LICs do.

It tries to buy undervalued growth companies or find value opportunities where the underlying business is worth more than its implied market capitalisation.

The WAM Capital investment team have been very successful using this strategy as it portfolio has returned an average of 14.1% per annum over the past 10 years before fees and taxes.

One share the WAM investment team seem confident about is Wealth Defender Equities Ltd (ASX: WDE). Wealth Defender is another LIC, it aims to outperform the S&P/ASX 300 Accumulation Index by investing in a diversified portfolio of Australian shares whilst using derivatives and cash to protect the portfolio through market cycles.

According to its latest monthly update the Wealth Defender portfolio has underperformed its benchmark by around 2% over the past year. Its post-tax NTA was $0.96 at the end of March 2018, whilst its share price was $0.84. Clearly the shares are trading at a discount to its underlying value but the Wealth Defender share price has been falling in recent times and could keep going down.

The WAM Group recently increased the overall holding of Wealth Defender from 14.02% to 15.29% on 4 April 2018.

Is Wealth Defender a buy?

Investors who want to buy things at good value could consider Wealth Defender, but it’s not the type of investment I’d want make. The best thing Wealth Defender can do to get NTA parity with the share price is to start outperforming its benchmark. I’d rather invest in WAM Capital rather than Wealth Defender at today’s prices, even with the premium.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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 Scott Phillips.

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