PMC/MFF, page-6

Hi CEO,
I've seen this post on the MFF thread also, as I hold both and I'm sitting on the couch double screening the Tour de France I'll share with you my opinions;

Upfront I'll declare I'm no fan of technical analysis techniques. I don't know anything about the software package you are using but if it is extrapolating some perceived megatrend in the data I would be very cautious. It is a human trait to try and discern patterns in data sequences that are by their very nature random and chaotic and the more data you sample the more it should be subject to the laws of Large Numbers and Regression to the Mean. It is humans that write software programmes and if those humans hold certain beliefs and biases they will be reflected in the outputs.

I try to be an objective value investor and as such I would have to assume that if you were forecasting a doubling in these LIC valuations over a year you are forecasting a doubling in the valuation of the underlying assets. MFF is heavily US large cap focussed and as the US market is generally considered to be in the mature stages of a 10 year rally with high historic P/E's, Donald Trump's trade wars and raising interest rates it is very hard to see how the S&P500 could double over the next year. My only caveat would be a huge collapse in the A$ and trying to forecast movements in the A$/US$ is a mugs game.

PMC is a more Asia/Europe focussed LIC with an eclectic mix of holdings and so is a bit more diversified w.r.t. markets and currencies. However it does historicaly trade at a large premium to it's NTA so it theoretically has less of a safety margin if things turn ugly. MFF trades at a discount to it's NTA so vici verci. You do have to be careful valuing LIC's on their NTA as it is based on their holdings market valuations rather than their individual holdings balance sheet asset valuations. Given all that you would still have to prefer a NTA discount to a premium.

PMC has a smaller market cap and FUM and I believe until recently it had underperformed the general LIC market since the GFC (as a long term holder it sure felt like it!), most probably due to Asia/Europe markets under-performing the AUS/US market over that period, so given regression to the mean it may be due to outperform. MFF has been a cracker over the same period with a TSR of 17% p/a over 10 years according to Commsec so again vici verci? However as MFF has a larger market cap/FUM it will take more wins/losses to move the dial so it would be theoretically less volatile (Large Numbers again).

PMC tends to pay a relatively generous fully franked dividend which can be reinvested at a discount if you so choose. V. nice if you can maximise the franking credits value in a SMSF. MFF's returns have been mainly capital gains so you will need to sell some to crystallise any gains, better though if you can time the sales to suit your tax position. I think I read in a presso that MFF are looking to up their dividend yield so that might attract more SMSF's to their register. Not sure if they have much in the franking account though. I personally prefer my returns in franked dividends over capital appreciation as the management can't take your divi's back if they go and make a stupid/unlucky decision. Again depends on your tax situation.

Published MER's are 1.5% for PMC and 1.25% for MFF both with performance bonuses so not cheap to own as the MER's are based on the FUM not the returns, but for the exposure to OS markets it would be difficult to DIY anywhere near that cost. I guess you could also justify the high MER's by hiring rockstar investment managers but research suggests that the management remuneration and performance do not generally correlate. I personally believe you do better over the full cycle with a sound research/trading strategy over a rockstar stock picker as insufficient weight is given to luck over skill when things are going well.

So there you have it. I have held PMC for a long time for exposure to foreign markets but I am happy to have purchased MFF more recently given their performance and discount to NTA. But remember to DYOR!

Cheers, MarcusA