WAM Capital Limited (ASX: WAM) has reported its full year result for the 12 months to 30 June 2019.
WAM Capital is a listed investment company (LIC) operated by the high-performing team at Wilson Asset Management, it has generated a return of 16.7% per annum since inception in August 1999 (before expenses, fees and taxes), outperforming the S&P/ASX All Ordinaries Accumulation Index by an average of 8.1% per annum.
It has been a tough last couple of years for active managers and FY19 was difficult for WAM Capital. It generated an operating profit after tax of $14.5 million, with the investment portfolio rising by 2% over the year (before fees, expenses and taxes).
Most of the WAM LICs, including WAM Capital, focus a lot of the investing efforts on smaller caps, which underperformed the large end of the ASX with investors seeking safety from the trade war between the US and China, and the political uncertainty of the federal election in Australia.
Investment managers focusing on smaller shares also wouldn’t have benefited from the strength of the resource sector over the past year or two.
WAM Capital was positioned to ride out market volatility at the end of 2018 with a high level of cash as the US Federal Reserve raised interest rates and was going through quantitative tightening, but the Fed did a u-turn and the WAM Capital portfolio missed out on a bit of the recovery. But between January 2019 to June 2019 the investment portfolio returned 12.4%.
Some of the top performers over the year included shipbuilder Austal Limited (ASX: ASB), buy now pay later company Afterpay Touch Group Ltd (ASX: APT), machine learning business Appen Ltd (ASX: APX), education provider Idp Education Ltd (ASX: IEL) and plus-sized fashion retailer City Chic Collective Ltd (ASX: CCX).
WAM Capital decided to pay a final dividend of 7.75 cents, bringing the full year dividend to 15.5 cents per share, the same as last year. As at 31 July 2019, the company had 13 cents per share available in its profit reserve before the payment of the 7.75 cents per share dividend, so there’s not much left in the tank.
WAM Capital does offer a grossed-up dividend yield of 10.5% and it has generated strong returns in the past.
But, due to the fact it’s trading at a 10% premium to the net tangible assets (NTA) and that there isn’t much profit reserve left, I’d rather buy shares of other WAM LICs like WAM Leaders Ltd (ASX: WLE) or WAM Research Limited (ASX: WAX) first.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. 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.