Listed investment companies (LICs) provide exposure to a diversified portfolio of investments much like managed funds. However, unlike managed funds, LICs can be traded on the ASX and generally have lower management fees.
LICs can be broadly classified into 4 categories:
- Australian shares.
- International shares.
- Private equity – investing in Australian or international unlisted private companies.
- Specialist – investing in sectors such as technology, resources or telecommunications.
The investment style and operation of LICs can differ widely and their approach can range from conservative to aggressive investment strategies.
LIC structures
LICs are closed-end investments, meaning they don’t regularly issue new shares or cancel existing shares as investors join or leave the fund. Instead, investors trade shares in the LIC on the ASX.
Occasionally however, the LIC manager may issue new shares to increase the portfolio, or buy back and cancel shares to reduce the size of the fund.
Many LICs manage the investment portfolio to minimise tax and produce regular income through fully franked dividends. This can provide investors with stable returns over the longer term. Like other listed companies however, dividends are paid at the company’s discretion.
Net Tangible Assets
The value of the LIC’s underlying investment portfolio on a per share basis is referred to as its Net Tangible Assets (NTA). The on-market price of an LIC relates to its NTA, but ultimately the price is determined by supply and demand. Therefore, at any time an LIC may trade at a discount, premium or at par to its NTA.
Contact Dixon Advisory about investing in listed investment companies.