The manager of WAM Capital Limited (ASX: WAM) is undertaking an initial public offering (IPO) for its newly-listed investment company or LIC.
It’s raising funds from investors who wish to gain access to the new international LIC, managed by the Wilson Asset Management team.
The company recently announced the offer has been oversubscribed following strong demand, which is not surprising given the loyal followers that invest across many of WAM’s funds.
And given the strong track record in Australian shares, investors are betting the Wilson team can translate that into solid returns from global equities.
WAM Global is raising up to a maximum of $550 million. The offer is still open until June 8, with shares expected to list on the ASX on June 22.
The fees are 1.25% per annum, plus a performance fee of 20% of the outperformance of the MSCI World Index (AUD).
WAM Global Limited (ASX: WGB) will operate in much the same way as WAM’s other listed investment companies.
WAM Global will aim to provide shareholders with strong risk-adjusted returns, derived from a portfolio of undervalued international growth companies.
The two key strategies the company will employ are its ‘research-driven’ approach and its ‘market-driven’ approach…
Research-driven is typically finding good quality undervalued companies to hold for the longer term – more focused on fundamentals.
Market-driven is finding short-term arbitrage and market-mispricing opportunities – more trading focused.
In both cases, WAM will usually sell its positions once their price target is reached.
The best information we have at assessing performance is to look at the other LICs Wilson has managed over a number of years.
WAM Capital Limited (ASX: WAM) has achieved a portfolio return of 17.5% per annum, before fees, since 1999.
WAM Research Limited (ASX: WAX) has achieved a portfolio return of 18% per annum, before fees, since 2010.
While impressive, the after-fee returns will be much lower than this because the management and performance fees are quite high for each LIC that WAM manages.
A key focus of each Wilson LIC is providing a strong stream of fully-franked dividends for shareholders, and is one of the main reasons its LICs are so popular.
In my view, the fees are one of the biggest risks here. Investors may receive less than market returns due to the high fees of this LIC.
There’s also the fact that WAM has no track record in global shares, so their success in Australia doesn’t automatically mean success overseas. In an increasingly competitive space, it won’t be easy to beat the MSCI World Index.
Wilson Asset Management has done a great job of managing money here in Australia. Its specialty is small-cap shares, which are sometimes less researched or overlooked by the market.
I’m less convinced WAM Global can outperform to such a degree that investors receive a market-beating return after fees.
Personally, I hold a couple of WAM funds, but I won’t be participating in this IPO. I’ll be watching with interest from the sidelines how this LIC performs in its first few years.
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Motley Fool contributor Dave Gow owns shares of WAM Capital Limited and WAM Research Limited. 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.