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Why WAM Capital Limited invested in Aveo Group

WAM Capital Limited (ASX: WAM) is one of the older listed investment companies (LIC) on the ASX and it certainly has been one of the best-performing ones over the past two decades.

Since inception in August 1999 the WAM Capital portfolio has returned an average of 17.5% per annum before fees.

It’s fair to say that the WAM investment team know how to pick out a good opportunity.

So, it’s an interesting development that one of the newer major positions in the WAM Capital portfolio is Aveo Group (ASX: AOG).

Aveo is one of Australia’s largest retirement village operators and has been operating for around 25 years. It now has over 90 retirement and aged care community locations across Australia with more than 13,000 residents.

Many readers will probably be aware of the ageing demographic that is expected to boost the businesses that service the older Australians. More demand for retirement homes should be good news for Aveo in the long-term.

The investment team of WAM said that the LIC had previously bought shares of Aveo when it traded at around a 30% discount to the net tangible assets (NTA) per share and sold when it reached NTA. After the scandal relating to Aveo, WAM has since bought into Aveo again at around a 30% discount to the NTA.

Aveo says that since the scandal, it has been listening to residents and simplified the contracts and invested in better care and health services. It has also introduced a home care service, creating more support for residents. Essentially, it believes it has made the changes needed to restore trust.

Foolish takeaway

Aveo looks like an interesting opportunity whilst the market sentiment is against it. The discounted value of Aveo could make it a market-beater. However, out of all of the retirement village operators I prefer Gateway Lifestyle Group (ASX: GTY) due to the sustainability of its fee structure.

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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.