What Is A Listed Investment Company (LIC)?

  • Oct 25, 2018 AEDT
  • Team Kalkine
What Is A Listed Investment Company (LIC)?

Listed investment company (LIC) is a listed investment vehicle on Australian Stock Exchange (ASX) which gives investors exposure to a diversified group of securities through a single investment. It provides access to diversified portfolio of shares in other companies which are listed on stock exchange.

The main goal of LICs is to steadily grow the profile, shareholder base and share price of the company while they pass increased amounts of portfolio performance into the companies' Net tangible assets (NTA). LIC’s have an external or internal manager who has the accountability for selecting and managing the investments of the company. Before making investments, one must assess the expertise and experience of the investment manager of LIC.

A major benefit of the LIC structure is that it is a ’closed end’ pool of capital which means that if an investor wants to leave the investment, they can simply sell their shares, without affecting the amount of funds under management. The pricing of LIC depends upon the value of the assets which are held in its portfolio, and LIC pricing is also dependent on the market perception of the company's future earnings potential. Most of the LICs usually distribute their income through fully franked dividends. 

Many LICs have defined plans to raising standards and transparency in both their company and the industry. These include creating and distributing information and presentation materials about the company, enhancement of the website and use of technology tools within to build traffic and brand.  LICs are affected by the overall volatility of the stock market due to which investors get impacted.

Argo Investments Limited (ASX: ARG) and Australian Foundation Investment Company Limited (ASX: AFI) are two examples of LICs. Established in 1946, Argo Investments Limited (ASX: ARG) has a portfolio of $5.5 billion and it provides investors a professionally managed, diversified and easily traded exposure to the equity market of Australia. ARG is currently traded at $7.670 with a market capitalization of around $5 billion as on 25 October 2018 (mid-day trading). Australian Foundation Investment Company Limited (ASX: AFI) is a listed investment company that aims to delivering attractive investment returns through a stable stream of dividends (fully franked) and medium- to long- term capital growth. AFI traded at $6.020 with a market capitalization of around $7 billion as on 25 October 2018 (mid-day trading).

It is to be borne in mind that not all LICs can give stable returns or are cheap to have. The above two LICs may seem to fit in such a category with high trading levels. Then you have, Magellan Global Trust (ASX: MGG), technically a LIT, which has a decent portfolio containing about 15 to 35 stocks and an exposure into cash division reflecting 20% of an overall portfolio. The Trust aims to achieve striking risk adjusted returns over the medium to long term and continuously garners for lowered permanent capital loss. As at 30 September 2018, the trust reported for total funds size of A$1,827.3 Mn; and has generated 19.9% returns per annum against the MSCI World Net Total Return Index returns of 18.7% p.a., since inception.

WAM Capital Limited (ASX: WAM) is another LIC with high dividend yield, and has recently announced for an off-market takeover bid of the entire issued capital of Wealth Defender Limited. Then WAM Research Limited (ASX: WAX) is another LIC which is doing well and has posted robust numbers for FY18 with 42.2% increase in the Operating Profit after tax at $21.6 Mn compared to $15.6 Mn in FY2017 at the back of healthy investment strategy with the largest contributions coming from the stocks including Afterpay Touch Group, Emeco Holdings, Bravura Solutions, etc.

Another stock committed to generating stable dividend income for the shareholders is Milton Corporation Ltd (ASX: MLT), which posted an underlying operating profit after tax at $128.8 Mn compared to $122.0 Mn in FY2017.

Thus, many such LICs can be scanned when investors are looking for stable returns.


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