What are they?

LIC’s provide exposure to a diversified portfolio of investments. Unlike managed funds, LIC’s are listed and therefore trade on an exchange such as the Australian Stock Exchange (ASX). As LIC’s trade on a stock exchange, its price will vary according to the normal market forces of supply and demand.

LIC’s have a Net Tangible Asset (NTA) backing, which refers to the total value of underlying investments held by the portfolio. However, given LIC’s are listed, they can often trade at a premium or a discount to this NTA.

LIC’s are closed end vehicles meaning that they generally will not accept new money from investors like most managed funds do. However, LIC’s from time to time may raise money from investors via the issue of new shares.

Unlike a managed fund, a LIC is not at the mercy of other investors who may request redemptions and withdraw their funds from the portfolio. Rather LIC investors can redeem their investment by selling the shares on the stock exchange in the same manner as any other company share.

What to look for in an LIC?

Strong dividends

An attractive LIC should have the ability to pay consistent and steady dividends, along with the ability to grow these dividends over time.

Long term performance

The performance of the LIC must be sound relative to its NTA. A LIC‘s share price should generally trade close to its NTA. For example a LIC that trades below its NTA can represent a good buying opportunity as the market may have mispriced the value of the investment.

Liquidity

The ability to easily buy and sell any investment is important. We look for the LIC to be a sufficient size to offer reasonable liquidity.

Board and Management Experience

The LIC’s board and management team should have extensive experience and a transparent philosophy.

Low Cost

LIC’s offer value for money and are low cost in comparison to managed funds.

Hopefully this has given you an insight into what a LIC is, the advantages they offer and what we look for in a LIC. If you would like to find out more about LIC’s, please contact your Hewison Private Wealth Adviser.