Why is WAM Capital (ASX:WAM) underperforming the ASX 200 in 2021?

WAM Capital might not have lived up to its reputation in 2021 so far….
The post Why is WAM Capital (ASX:WAM) underperforming the ASX 200 in 2021? appeared first on The Motley Fool Australia. –

WAM Capital Ltd (ASX: WAM) has long been one of the most prominent Listed Investment Companies (LICs) on the ASX boards.

One reason would be its monstrous size, with a market capitalisation of almost $2 billion. But since its inception in 1999, WAM Capital has carved out a reputation for itself that is rather different from other famous ASX LICs as well.

WAM Capital: A different kind of ASX LIC?

The venerated Argo Investments Limited (ASX: ARG) and Australian Foundation Investment Co Ltd (ASX: AFI) have built a reputation over many decades as LICs that offer large, diversified portfolios of ASX shares offering steady dividend payments.

But WAM Capital instead went for a more aggressive investing strategy. This LIC doesn’t usually do ‘buy and hold’ investing. Instead, it “provides investors with exposure to an actively managed diversified portfolio of undervalued growth companies”. As well as “relative value arbitrage and market mispricing opportunities”.

This strategy has worked very well for WAM Capital since its ASX debut more than 2 decades ago. According to Wilson Asset Management (the ‘WAM’ in WAM Capital), this LIC has managed to return an average of 16.5% per annum (before fees and taxes) since its inception in August 1999.

That’s well above what the S&P/ASX 200 Accumulation Index has delivered over the same period (according to WAM, 8.7% per annum).

But year to date in 2021 so far, the picture certainly looks a lot less rosy. Take into account just WAM Capital’s share price. We can see it remains down year to date, having lost 0.9% of its value since the beginning of January.

Now we won’t be unfair to WAM Capital here. The LIC has also paid a hefty 7.75 cents per share dividend in 2021 back in June. That dividend is worth a trailing yield of 3.51% just by itself on WAM’s recent share price (or 7.01% annualised). That would push it into positive territory for the year so far.

However, the S&P/ASX 200 Index (ASX: XJO) has seen gains of 12.37% in 2021. And that’s not even including dividend returns. This means that, even if we include WAM Capital’s dividend, it’s still trailing the broader market over the year to date.

So why this underperformance?

Share price vs NTA

Well, it’s not as bad as you might initially think. With LICs, there are normally two metrics we can look at to assess the company’s performance. Those are share price appreciation (duh) and net tangible asset (NTA) appreciation.

See, LICs hold within them a portfolio of shares. Many investors like to look at the raw portfolio value, or NTA, of a LIC’s portfolio, rather than its market-determined capitalisation. That’s because a LIC can either trade at a premium or a discount to what its actual NTA is.

We see this in action with WAM Capital. As of 31 July, WAM tells us that WAM Capital had an NTA per share of just $1.89. Yet it trades today with a share price of $2.21. That means for every share you are paying $2.21 for, you are actually only getting $1.89 worth of underlying share value. In other words, WAM Capital shares are currently trading for an almost 17% premium to what its underlying shares are worth.

Now although WAM Capital’s share price has depreciated by 0.9% in 2021 so far, its NTA per share is actually up by around 5% between 31 December 2020 and 31 July 2021. But investors seem to have narrowed WAM Capital’s NTA-share price gap rather than send WAM Capital shares even higher.

Why has WAM Capital trailed the ASX 200 in 2021?

So this premium to NTA that WAM Capital is currently exhibiting may be holding back its share price performance in 2021 so far. But even so, WAM Capital’s NTA growth has still not managed to match the ASX 200’s. There’s nothing to blame but the company’s investment portfolio performance for that.

No doubt investors will be hoping for WAM to rediscover its old ways and deliver some market performance in the months and years ahead. At least shareholders can treat themselves with that ~7% annual dividend while they wait!

The post Why is WAM Capital (ASX:WAM) underperforming the ASX 200 in 2021? appeared first on The Motley Fool Australia.

Should you invest $1,000 in WAM Capital right now?

Before you consider WAM Capital, you’ll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and WAM Capital wasn’t one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

More reading

CSL (ASX:CSL) share price in focus after outperforming FY21 guidance
How did the Star (ASX:SGR) share price respond last earnings season
How did the Newcrest (ASX: NCM) share price respond last earnings season?
2 small-cap ASX shares showing excellent growth

Woodside (ASX:WPL) announces new leader

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!