Naos Asset Management run a few different listed investment companies (LICs) and one of them is NAOS Absolute Opportunities Co Ltd (ASX: NAC). It identifies industrial shares with market capitalisations between $400 million and $1 billion that it believes will make long-term returns.
The LIC has previously been attractive to me because its portfolio has delivered impressive long-term returns (before fees) and it currently has a trailing grossed-up dividend yield of 7.85%.
However, investors have regularly pointed out that this LIC has an odd benchmark of the RBA cash rate plus 2.5%. When the LIC first launched a few years ago this would have been a decent target to earn a performance fee, but with the RBA rate being so low it has a much lower target.
NAOS Absolute Opportunities Co today announced it is proposing a few changes.
The proposal is to change the name to NAOS Ex-50 Opportunities Company Limited to make it more clear about what its mid-cap investment strategy is, however the code will remain ASX: NAC.
It is also proposing that the benchmark be changed to the S&P/ASX 300 Industrials Accumulation Index.
The NAOS board believes this would be a more appropriate benchmark index for the manager to have to earn an outperformance fee.
The LIC is also suggesting that it could change the dividend payment frequency from six-monthly to quarterly so that it can promote itself to the financial planning community as well as direct shareholders like SMSFs to help with their cash flow and investment objectives.
This won’t change how much dividends shareholders get in total, but spreading the amount out throughout the year could be helpful. Not many companies pay in the months of December or June, so perhaps those months would be particularly attractive for retiree shareholders if chosen.
If I were a NAOS Absolute Opportunities Co shareholder I would be particularly pleased with the benchmark change, as it will likely mean a higher threshold for performance fees. This is a positive step and I’d be more comfortable holding shares in my own portfolio
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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.