LICs typically have healthy dividend coverage

In the attached IIR LMI Monthly Update we take a look at the key news for March as well as provide a summary of the dividends/distributions declared for the half year period to 31 December 2024.

As we discussed in our outlook for 2025 in the newsletter published on 17 December 2025, the policies enacted by President Trump were always going to shape the markets for 2025. The President’s policies on tariffs during the week took everybody by surprise with the extent of the sweeping tariffs greater than the market expected, which triggered a material sell off in markets globally. The extent of the sell off is unknown at this time, however we expect market volatility to continue as a result of the greater than expected economic impact that the tariffs are expected to have. 

LICs generally have a healthy level of dividend coverage which, depending on the dividend policy, will provide the ability to support dividends through a period of market weakness. However, this is not the case for all LICs which may result in dividend volatility for some investors. LIC dividends are at the discretion of the boards with market conditions potentially impacting dividends declared.

We were expecting a decline in the distributions for the Fixed Income LITs given the Cash Rate cut expectations, however depending on the economic outlook rates may be cut more than initially expected coming into the year. 

The key news items for March include:

WAM Income Maximiser Limited Coming to Market 

Wilson Asset Management is seeking to raise up to $510 million for its latest LIC, WAM Income Maximiser Limited (WMX). The Company is seeking to issue up to 340 million shares at $1.50 per share with the capital raised to be invested in a multi-asset portfolio providing exposure to a combination of equity and debt securities with a “balanced” asset allocation. The core asset allocation is initially expected to be 60%-70% equities and 30%-40% debt. The allocation between the asset classes will be dynamic and at the discretion of the Manager based on the outputs from the investment process.

The Company will seek to provide a monthly income stream in the form of fully franked dividends with a target grossed-up income return of RBA Cash Rate + 2.5%p.a. The target income return will have reference to the NTA, not the share price. The Company will be seeking to be in a position to commence dividends in August 2025, subject to the portfolio performance and sufficient income being generated over that time, being three months after the IPO. The portfolio will be managed by Wilson Asset Management (International) Pty Ltd (the “Manager”), which is 100% owned by Geoff Wilson and forms part of the Wilson Asset Management Group. The Company has entered into a Manager Loan with the Investment Manager to cover the costs of the Offer. The Manager will drawdown an amount equal to the Offer costs with a maximum value of 2.5% of the maximum subscription amount. The loan is for a term of 36 months from the date of the allotment of shares and must be repaid in full regardless of whether the Manager is the Manager of the Company. The loan will be paid in monthly instalments, however the Manager retains the discretion to repay the loan early.

Opthea’s Failure to Meet Primary Endpoints in Phase 3 Trial Sees a Number of Portfolios Take a Hit

The Company entered into a trading halt prior to the announcement of the topline results with the company currently assessing its rights and obligations under its Development Funding Agreement (DFA). It is possible that under the DFA, the company could be required to pay DFA investors an amount that would have a material adverse impact on the solvency of the company.

PE1 Decides on Strategy to Address Discount

The subdued performance of the portfolio in recent times has led to weak demand for the Trust and has seen the discount increase materially, however the portfolio has shown signs of life in recent months with the Manager believing there is the potential for the realisation of some of its bigger positions in the next 12 months. Given the expected improvement in deal flow in 2025 we view the discount to provide an attractive investment opportunity for long-term investors.

Co-Portfolio Manager Appointed for PIC Portfolio

Sean joined the Perpetual Australian Equities Investment team in 2014. During his time at Perpetual he has worked as an Equities Dealer and Analyst covering a range of sectors. Sean was appointed as Deputy Portfolio Manager for the Perpetual Share-Plus Long-Short Fund and Perpetual Pure Equity Alpha Fund in 2021 and 2022, respectively.

GCI Raises $209.7 million through Entitlement Offer

In its most recent investment update, the Trust provided an update on the portfolio given the recent weather events experienced in Queensland. In late January there was a flooding event in North Queensland. Exposure to the flood affected areas represented ~0.9% of the portfolio with direct discussions with the issuers revealing a total of 4 borrowers across the portfolio who had sought assistance or hardship support. Queensland was also recently affected by Cyclone Alfred, thankfully not to the extent that was anticipated. The impact was restricted to localised flooding with limited property damage. Diversification in the portfolio by investment and geography combined with the bond protections for bondholders has resulted in NAV stability throughout the Trust’s history.     

Developments for the MOT Portfolio

The Trust also announced during the month that the Credit Trust had agreed to acquire the remaining interest it did not own in BC Investment Group (BCI). The Trust had previously owned a 29.8% stake in BCI. BCI is a diversified financial services group and non-bank lender offering mortgage lending solutions and asset management services. BCI had total loans under management of $6.5 billion as at 31 January 2025. The initial purchase price will be $140.3 million with potential deferred consideration of a maximum of $6.9 million. Further to this the Credit Trust will refinance shareholder loans, which support BCI’s investment in its loan portfolio. The acquisition will be funded from available capital and following the acquisition, BCI will represent ~1.9% of the NAV of MOT on a pro forma look through basis.   

Metrics Credit Holdings Pty Ltd Issues Shares to Strategic Partnership between National Pension Service of Korea and Townsend Group

Proceeds from the transaction will be used to provide capital to support growth initiatives, including potential acquisitions and/or the development of new investment strategies. 

SEC Reinstates Conditional Proposal

The modified conditional proposal was first announced on 26 February 2025 and comes after the success of the previous conditional proposal which resulted in a narrowing of the discount. The modified conditional proposal has been extended from one quarter to a full year with the goal to ensure the discount is maintained within an acceptable range. The Company will provide a running calculation of the average premium/discount on a monthly basis for the period of conditional proposal.

The proposal should continue to have a positive impact on the discount with the investment presenting arbitrage opportunities in the event the discount expands to a material extent.