LICs are investment companies that provide an investor or superannuation fund with exposure to professionally managed assets. They are like managed funds but have some key differences.

Firstly, they are “closed-end” vehicles – which means they do not regularly issue new shares or cancel shares as investors join and leave the fund. Instead, investors buy and sell shares in the LIC to each other on a stock exchange (i.e. the ASX). 

Occasionally, the manager may issue new shares to increase the size of the portfolio, or buy back and cancel shares in order to reduce the size of the fund. These decisions are made at the discretion of the investment manager. The closed-end structure allows the fund manager to concentrate on investment selection without having to factor in the possibility of money coming into or leaving the fund. This capital stability assists those managers who take a long-term approach to investing.

Many LICs manage the investment portfolio to minimise tax and produce regular income through fully franked dividends which can assist in providing investors with stable returns. Like any other ordinary company though, the payment of the dividend is set at the discretion of the manager.  

Secondly, it means that LIC managers don’t need to buy assets at the top of a market or sell assets at the bottom. One of the benefits of their closed-end structure is that investment managers don’t have to worry about being flooded with money to invest when investors want to invest or sell lots of assets when investors want to redeem their money. When investors like what the LIC is doing, they simply look to buy shares in the LIC (the share price goes up – more buyers than sellers) or sell the LIC if they don’t like what they see (the share price goes down – more sellers than buyers) – just like any other listed company.

Lastly, the larger LICs tend to have quite low investment management fees (e.g. 0.18%). But LICs can also have a share price that deviates significantly from their Net Tangible Assets (NTA). This gap generally reflects a liquidity issue.

A LIC may invest:

  • solely in Australian shares (large cap) like Aberdeen Leaders (ASX stock code: ALR),
  • small cap stocks like Wilson Assets Management (ASX: WAM),
  • microcap stocks like Contango (ASX: CTN) who invest in listed companies with market capitalisation as small as $10M,
  • global resource stocks like Global Mining Investments (ASX: GMI),
  • private equity like ING Private Equity (ASX: IPE).

Note: The companies mentioned here are not to be taken as recommendations. They are shown for example only. All investors should seek professional advice before investing.

There are 60 LICs listed on the Australian Stock Exchange. And did you know that the first LIC was listed on the Australian Stock Exchange in 1936 ? …and is still in existence today.

Note: Information on investment management firms contained herein has been obtained from the firms themselves and other sources. While this information is believed to be reliable, no representations or warranties are made as to the accuracy of the information presented, and no responsibility or liability, including for consequential or incidental damages, can be accepted for any error, omission or inaccuracy in this report or related materials. Opinions on investment products contained herein are not intended to convey any guarantees as to the future investment performance of these products. In addition, past performance cannot be relied on as a guide to future performance.