At our Annual General Meeting, our shareholders were keen to know more about Mirrabooka’s performance during the 2022-23 financial year. Here we recap on some of the reasons underpinning that strong performance and other matters raised by shareholders.
Why has Mirrabooka performed better than the other LICs in the group?
In the 2023 financial year, Mirrabooka’s portfolio of small to mid-cap companies delivered a total portfolio return of 17.9 per cent, including franking, compared to the Combined ASX Small Ordinaries and Mid Cap 50 Accumulation Index return of 14.2 per cent, including franking. We have also outperformed the benchmark index over the 10 years to 30 June 2023. Mirrabooka’s return is 12.4 per cent versus 10.6 per cent for the benchmark over this period.
We seek to invest in companies that are well managed, have consistently good operating performance and growth prospects, and which can navigate challenging economic conditions. However, one of the reasons why Mirrabooka has been able to deliver strong returns relative to our other LIC’s is related to the part of the market in which it operates – the small and mid-caps sector which generally has higher levels of risk and therefore should provide a higher level of return.
Companies in this sector are often in their early growth stage, so we can capture the benefits of more years of elevated growth as the companies expand their businesses. We also tap into these companies while they remain largely “undiscovered” by the broader market. This potentially produces higher rewards.
We have had companies in our portfolio that have underperformed, but we have a process that enables us to scour the market for the best opportunities, and that has enabled us to capture some very good returns from various companies.
We buy a diverse range of quality stocks with a medium to long-term view. We’re wary of overpaying and we sell when the investment case adversely changes. We monitor holdings for excessive valuations to manage risk. Hence the good record.
Given the increasing popularity of ETFs, what does the future look like for LICs?
Certainly, ETFs have grown in popularity and there’s a difference between the more traditional LICs and new LICs that have come onto the market in recent years.
When choosing between a traditional LIC and a new LIC, it’s important to consider the details, such as the fee structures. The four LICs within our group, including Mirrabooka, have no separate funds management business and only seek to recover costs – they don’t charge fees. That's very different to some of the newer LICs that have come onto the market where there is a fund manager charging performance fees and other fees.
We are also aware of the impact of tax in terms of the turnover among the companies in the respective portfolios and we’re very attuned to the returns that we can generate for our investors. We’re also transparent and have a board of directors to oversee the activities of the company. We believe that provides an element of trust in what we do.
Importantly, Mirrabooka has performed very well and has significantly outperformed any ETF that operates in the same sector of the market. Mirrabooka features active management even though activity is not high in terms of portfolio turnover.
In all, there are many elements that make LICs an attractive investment, especially if they are well managed and the structure is sound.
One thing investors should be aware of is the share price in relation to NTA (net tangible assets). The relationship between the two does change and can be cyclical. We publish the NTA every month, and we always encourage investors or potential investors to have a clear view of where the Mirrabooka share price sits in relation to the NTA to understand whether the company is trading at a premium or discount.
There are plenty of advantages still in the LIC structure, but you must consider the details.
Will Mirrabooka offer shareholders a share purchase plan?
We’ve undertaken regular share purchase plans at Mirrabooka, the last one in April 2022. Several factors determine whether we offer an SPP to our shareholders, the main one being what reason we have for raising the funds. We only raise money if we see good investment opportunities in the market rather than just trying to increase the size of the company.
We're not a traditional fund manager where the more funds we have, the more fees we receive. Also, increasing in size too much can sometimes restrict our ability to take advantage of opportunities so there's no urgency for us to grow too rapidly. Rather, it’s more important to determine where the investment opportunities are and what our investment team can do with the money raised.
We also consider where the Mirrabooka share price is relative to the NTA, and whether there is interest in an SPP from shareholders. There are many factors to consider, and we always want to ensure that we are acting in the best interests of our shareholders.
How does Mirrabooka consider ESG matters, especially around climate change?
We are of course concerned with ESG (environmental, social and governance) matters, but we don’t define ourselves as a pure ESG fund, of which there are many on the market. There is a significant level of research and expectations associated with being an ESG fund, so it is more complicated than simply calling yourself ‘an ESG fund’.
However, assessment of ESG issues is an important part of our investment process. Mirrabooka is a long-term investor and a key factor we consider when investing in a company is its long-term sustainability. We seek to invest in companies that have strong governance and risk management processes, which includes consideration of environmental and social risks.