What's driving the dislocation in international equity diversified LICs & LITs?

At 31 May 2023, just 7 of the 80 LICs and LITs in the IIR universe of coverage were trading at a premium to pre-tax NTA/NAV, with the remaining 73 LICs and LITs trading at a discount to pre-tax NTA/NAV. Discounts ranged from 0.7% to 40.4% with the average discount being 14.7%. 

IIR considers there to be a wide range of reasons for the dislocation between portfolio value and share/unit prices ranging from portfolio performance, dividend volatility, liquidity and competition from open-ended structures. 

Some of the factors contributing to the discounts are market driven and some are self imposed, such as capital raising at significant discounts to NTA/NAV or disruptions within the manager of the portfolio. 

Dislocation between portfolio value and market prices is becoming an increasing issue for Boards and Responsible Entities with share/unit holders becoming increasingly impatient with closed-ended funds that are trading at discounts for prolonged periods of time. This has resulted in a number of funds restructuring to open-ended structures or delisting and continuing to operate as an unlisted fund.

While discounts are prevalent across the LMI market, in this report we focus on the 9 LICs and LITs classified by IIR as International Equity Diversified. This category of LICs and LITs have a global equity focus with the mandates including both long only and long short strategies. The majority of the LICs and LITs invest directly with one vehicle, FGG, having a fund of fund investment approach. All LICs and LITs in this category were trading at double digit discounts to pre-tax NTA/NAV at 31 May 2023, with the average discount across the group being 16.1%.

The attached report takes a look at a few of the factors that IIR considers to be contributing to the dislocation.