Argo's corporate structure
Argo is a long-term investment company listed on the Australian Securities Exchange.
As a listed investment company (LIC), Argo has a closed-end structure, unlike many unlisted managed funds. A key advantage of a closed-end listed fund is that the investment portfolio is insulated from investor inflows and outflows, as Argo shares are traded between buyers and sellers on the share market. This structure is ideally suited to building a long-term portfolio, as the timing of investment decisions is not forced by external factors.
Argo is internally managed and no fees are charged to shareholders or paid to an external fund manager. The costs of managing the Company are deducted from revenue to produce the profit from which dividends can be paid to Argo shareholders.
Every month, the net tangible asset backing per share (NTA) is calculated and announced to the ASX. This provides shareholders with regular, transparent valuation of their shares based on the underlying value of Argo's portfolio.
Argo's business model
Argo generates its revenue primarily by ‘harvesting’ the dividends and distributions received from the companies and trusts in its investment portfolio. Additional income is derived from interest earned on cash deposits, premium income from writing exchange-traded options and a small amount of share trading activity.
Argo’s costs of operation are relatively stable and are lower than those of most other managed investment products, due to the structure of an internally managed listed investment company which requires few employees to administer its business. Overall, the Company’s annual expenses are currently equivalent to 0.15% of average assets, with the main items being remuneration, share registry fees and office rent.
The above characteristics make for an efficient business model which benefits from economies of scale. The low proportion of variable costs implies that in general, profit will fluctuate according to the performance, and in particular the dividend payout policies, of each of the companies and trusts in the investment portfolio.
The majority of Argo’s profit is paid out as dividends to its shareholders, with fully franked dividends a priority.
In 2015, the Company added another activity to its business model.
Following the establishment and separate listing on the ASX of Argo Global Listed Infrastructure Limited (AGLI), Argo will receive an ongoing fee for managing the operations of AGLI, via Argo's wholly owned subsidiary, Argo Service Company Pty Ltd (ASCO).
ASCO was established to provide funds management services to external listed investment companies under Australian Financial Services Licence no. 470477.
The management fees earned in conducting these activities will provide Argo with an additional revenue stream which should grow over time and complement its traditional income sources.