Wilson Asset Management is the group behind the successful series of listed investment companies (LICs) that now dominate the LIC space on the ASX. Founded by the titular Geoff Wilson in 1997, Wilson Asset Management now manages more than $3 billion of capital on behalf of over 80,000 shareholders. You might recognise Mr Wilson for his strident campaigning against the Labor Party's proposal to remove refundable franking credits during the last election campaign.
Of the six LICs that WAM now runs, the most popular are WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX). This is for good reason – both WAM and WAX have a long history of outperformance while managing to pay a lucrative and rising stream of fully franked dividends. Both LICs follow a similar strategy of investing in small to mid-cap ASX companies.
Because of these facts, WAM and WAX also have a long history of trading above their net tangible asset (NTA) levels (meaning when you buy, you have to pay a premium to what they are worth).
How do WAM and WAX compare?
WAM has a current market capitalisation of about $1.5 billion and has outperformed the S&P/ASX All Ordinaries Accumulation Index by 3.9% over 5 years and 9.4% over 10 years (although it has underperformed by 7.9% over the past year). As of 31 May, its current top holdings include WAAAX stars AfterPay Touch Ltd (ASX: APT), Appen Ltd (ASX: APX) and Xero Limited (ASX: XRO) as well as blue chips like CSL Limited (ASX: CSL) and InvoCare Limited (ASX: IVC).
WAM is currently trading at a share price of $2.02, which translates to a premium of around 10% of its NTA of $1.83. Many investors would happily pay this premium considering WAM is currently yielding a grossed-up 10.57% dividend.
WAX has a far smaller market cap of around $228 million but has also considerably outperformed the Accumulation Index over 5 years by 6.8% (although it has also underperformed more recently). Some of WAX's top holdings include Cleanaway Waste Management Ltd (ASX: CWY), the A2 Milk Company Limited (ASX: A2M) and Vocus Group Ltd (ASX: VOC).
WAX shares are currently swapping hands for $1.38 which, given WAX has an underlying NTA of $1.19, translates to a price premium of almost 16%. WAX's dividend yield is slightly lower than WAM and is currently sitting on 10.29% grossed-up (which is still eye-wateringly massive).
Foolish takeaway
Both WAM and WAX follow similar strategies, trade at significant premiums and offer gigantic yields. Both LICs have also raised their dividends every year since the GFC. If I were to choose, I would prefer WAX simply because it has a smaller market cap and therefore more easy room to grow. However, I would prefer to see this price premium narrow before I would buy in.
