Taylor Swift’s favourite sharemarket investment is discounted funds

The shrewd singer outfoxes the music industry and has a fondness for discounted funds – here’s a guide to what she might like on the ASX.

Taylor Swift is a fan of ‘discounted mutual funds’ – that is share-based investment funds that are selling for less than the total value of the shares they carry. Picture: AFP

Pop star Taylor Swift is probably the best business brain seen in showbiz since Frank Sinatra. This week one million people tried to register for the Australian leg of her worldwide tour, which is expected to gross $1bn. Hardly a surprise, then, to hear she is also a shrewd investor.

We know she has three key financial interests: Making money from the music industry – where she has re-recorded her own songs to enhance her royalties; the development of luxury property; and investment in discounted funds.

Most people would probably be excluded from the first two asset categories but the area of discounted funds is wide open. We know about the star’s preference for these funds because her dad Scott, a former Merrill Lynch stockbroker, and his chum, hedge fund manager Boaz Weinstein, have let Swift’s sharemarket investment of choice become widely known.

Swift is a fan of “discounted mutual funds” – that is share-based investment funds that are selling for less than the total value of the shares they carry.

It’s a perfectly sensible investment choice but not one that most people would know unless perhaps their dad worked for Merrill Lynch.

In the Australian market our version of discounted funds is to be found on the ASX as Listed Investment Companies – there are more than 30 of these so-called LICs and it just so happens that many of them are selling at a discount.

In fact, with the Australian sharemarket barely ticking along – it is up a mere 4 per cent for the year to date – compared to 15 per cent for Wall Street’s S&P 500 – there could be real value within this range of investments.

Even top notch LICs that normally trade at a premium – such as AFIC or Argo – are on a discount.

To be precise, an LIC at a discount means the fund sells on the sharemarket at a discount to the estimated Net Tangible Asset per share. This is a calculation which you don’t have to do yourself, stockbrokers are happy to do it for you.

The Bell Potter group updates its table of LICs running at either a premium or a discount every week.

If we look at the state of play this week, the majority of LICs are at some sort of discount – but often only a few per cent, which may not make a big difference either way.

However, the logic of Swift’s approach is to buy a security cheaply and then get the double benefit of both the security price rising and the discount closing as things get better

No doubt the singing sensation and her team of top advisers look for deep discounts.

If we look at Australian LICs where the discount is substantial – i.e. 15 per cent or more – then we get a very interesting list of around 15 funds, which includes funds from leading managers.

For example, the WAM Active fund chaired by Geoff Wilson has returned 10 per cent a year since its inception in 2008 – beating the wider market by nearly 5 per cent a year since that time.

But just now it is trading at a discount of 18 per cent. In the past the fund has traded at a premium and may do so again once the ASX rebounds from its current lacklustre trading pattern.

Other funds tracking at a discount that are linked with high profile names include the Thorney Technologies fund, which has investment tycoon Alex Waislitz as non-executive chairman. This fund is currently selling on a 35 per cent discount.

Haydn Nicholson, a LIC specialist at the Bell Potter group says: “We are definitely seeing value among the discounted LICs funds at the moment for a range of reasons including the soft patch in the local sharemarket. There is also a clear opportunity in funds which have good exposure to share markets outside Australia.”

More typically, though, many LICs have what appear to be permanent discounts. As one adviser explains: “Some funds are discounted since they arrived on the market and it might stay that way.” Discounts can be due to performance but also lack of demand, perceptions of management ability and the level of fees.

The Billboard group estimates Swift’s worldwide tour could be the most lucrative music tour ever seen. But Swift won’t be offering any discounts. In fact, Victorian premier Daniel Andrews had to step in to stop scalpers adding a generous premium to tickets for the shows, which went on sale this week.