On a slightly different (than ETF's) thread, has anyone looked at FGX? It's a recently listed LIC that invests in a 14-15 Australian small and mid-cap managed funds. All of the underlying fund managers have waived their management fees and performance fees, and the LIC donates 1% of its assets each year to charity (so basically has a management fee of 1% p/a). Geoff Wilson set it up and is on the Board.
For me, the main benefit was to get exposure to a number of different fund managers for 1% p/a, and don't need to invest the normal $50k minimum to invest in the funds, along with a management fee less than what you'd get if you invested in the underlying funds.
I put some funds in soon after listing, and will keep an eye on it to see if it trades under NTA.
I think it is credible but primarily because there are no cheap small or mid-cap index products that I trust. The Small Ordinaries Index seems to have been outperformed reliably by a large proportion of funds and the Realindex Wholesale small cap fund costs 0.86-0.89%, not far from 1%. This fund includes some apparently successful funds and managers that are otherwise closed to new purchases.
There are a few things to keep an eye on
-If buying after listing note that there are about as many outstanding options at $1.10 as there are shares. So if the LIC performs well there will be potentially material dilution of equity in just under two years (you can buy the options at around 5c each to be in the same position as those who bought during listing).
-I'm hopeful the underlying funds and the allocation to them will stay 'on style' but the LIC management are permitted to follow any strategy they wish. It is possible the allocation towards large caps will creep up (there is a little already) and so diversification benefits will be reduced.
-There isn't that much information available on some of the underlying funds so it is unclear how tax efficient they are. Some of the strategies such as long-short portfolios may have a fair amount of turnover. While the dividends will likely be franked, the LIC itself still pays corporate taxes on distributions and capital gains distributed so turnover in the underlying funds may be a drag on returns.
-As competition increases in the small and mid-cap sectors cheaper options should arrive. We could be 'stuck' with this fund when a RAFI small cap ETF or ASX ex-20 ETF (excluding the top 20 shares) comes out, for instance, due to capital gains tax implications. In this 'worst' case we're donating 1% p.a. to children's charities in lieu of fees so if the fund is performing adequately it would be hard for me to feel particularly bad about it.
This is one of the recent LICs that I have some interest in. The other is QVE, an ex-20 focused LIC from value-oriented manager with current fees around 0.85%+/-. Most of the concerns are the same except that my instinct is that QVE will do more buying-and-holding than the underlying funds held by FGX, so my best guess is that it will suffer less drag from taxes. With QVE it is a fee, though, not a charitable donation (which actually also improves the tax efficiency, sadly, as the donation reduces the taxes paid by FGX and so reduces the franking credits they distribute).
I actually prefer both of these to, for example, the Betashares fundamental ASX ETF QOZ which charges 0.40% p.a. including expenses and does experience a reasonable amount of turnover. The reason is that for 0.40% I can get around 30% FGX or QVE plus 70% VAS and seems likely to be a more substantial 'tilt' to small and mid-caps or value while isolating fund turnover to the smaller component. There goes my indexing cred!