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Best-Performing LICS on the ASX
By
Will Ellis
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Last Updated on March 16, 2024
Edited by
Adam Turner
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Fact checked and reviewed
Here’s the deal: The Australian Stock Exchange (ASX) is home to more than a hundred Listed Investment Companies (LICs).
Because of this, I have only examined the largest LICs by market size rather than trying to cover the whole sector. What follows is a breakdown of my findings about the year-over-year success of many market leaders in the LIC space.
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Table of Contents:
- Top ASX Listed Investment Companies (LICs): Your Overview
- But can you trust them? Arguments For & Against
- Reviews: 5 Best-Performing LICS on the ASX in Australia
- 1. Australian Foundation Investment Company
- 2. WAM Capital Ltd
- 3. Argo Investments Ltd
- 4. BKI Investment Company Limited
- 5. Metrics Master Income Trust
- Buying Guide
- Conclusion
- FAQs
Top ASX Listed Investment Companies (LICs): Your Overview
To begin, let’s define “LICs”. LICs are publicly traded companies whose primary purpose is to acquire shares in other publicly traded businesses.
It’s like hiring a better-equipped version of yourself to make picks for you. Publicly traded investment firms that own a varied portfolio of assets such as stocks, bonds, real estate, and other securities are known as listed investment companies. Just like any other publicly traded company, they have a stock market listing and issue shares to investors.
Who is this…other you? Investment choices for a LIC and its shareholders are normally made by a professional fund manager. They may tailor their approach to investing to a certain industry, geographic location, or investment strategy, such as value investing or growth.
And what’s in it for them? Investment managers earn their keep by taking a cut of the company’s net tangible assets (NTA) as payment for their services. If the management firm outperforms a certain benchmark in terms of returns, the client may be required to pay an additional “performance fee”. Shareholders’ yield may be lowered due to these charges.
It is the ‘closed-ended’ nature of listed investment vehicles that sets them apart. This implies that there are limits on the issuance and cancellation of shares, making it difficult to meet a sudden uptick in demand for the stock.
But can you trust them? Arguments For & Against
✔️ Why would you consider putting money into LICs? The attractiveness of the closed-ended structure is that the investment firm is not required to liquidate its holdings in order to satisfy a holder’s redemption request. Instead, investors can cash their assets into other share market investors.
And the result? A secure environment in which the fund manager can focus on the long term and take advantage of market fluctuations with confidence.
In this way, with LICs, you can quickly diversify your portfolio by gaining exposure to a wide range of firms with one transaction. They may be useful for retirement accounts since they provide investor access to a wide range of assets.
LICs shares are listed on the equity market like regular firms, making them easier to acquire and sell than shares in mutual funds. Some want more expert management to steer the ship.
❌ What about the downsides? There are always downsides. Compared to exchange-traded funds (ETFs), particularly low-cost passive ones that merely copy the results of an index, actively managed LICs often have higher costs.
The possibility of not being able to sell LICs at a reasonable price when you need to is a possibly more serious negative of investing in them.
Investors may trade LIC shares with one another on the stock exchange. Investing in them might be challenging if no one is willing to pay the amount the investor is asking.
As a result, the investment company’s market value of net assets may diverge from the share price. If money is needed urgently or if the firm loses favour with investors, this might be a serious issue. On the other hand, if the LIC is really well-liked, its stock might trade at a premium above its intrinsic worth.
Last but not least, LICs seldom declare the value of their assets, making it difficult to ascertain the worth of such assets at any one moment. However, exchange-traded funds disclose the value of their holdings on a daily basis.
Reviews: 5 Best-Performing LICS on the ASX in Australia 📕
Now that you’re familiar with the broad categories of top LICs on the ASX, I’ll explore specific providers. Let’s get on with our guide:
- Australian Foundation Investment Company (ASX:AFI) — Best-Performing LIC on the ASX
- WAM Capital Ltd (ASX: WAM) — Australia’s Runner-UpTop LIC on the ASX
- Argo Investments Ltd (ASX:ALI) — Next Best-Performing LIC on the ASX
- BKI Investment Company Limited (ASX:BKI) — High-Performance LIC for Dividends
- Metrics Master Income Trust (ASX: MXT) — Popular LIC on the ASX in Australia
1. Australian Foundation Investment Company (ASX:AFI) — Best-Performing LIC on the ASX
Australian Foundation Investment Company (AFI) is the largest LIC listed on the Australian Stock Exchange. With a focus on the long term, its investment team seeks to maximise returns for shareholders via dividends and capital appreciation. The majority of the firm’s assets are held in stock.
The current price of AFI stock is about $7.60, down around 10% from the same period last year.
It’s hardly unexpected, considering that several markets throughout the globe fell in value in 2022, as investors battled rising inflation and interest rates. While AFI’s 1-year return was lacklustre, the fund is up 39% from its 2020 Covid-19 low.
2. WAM Capital Ltd (ASX: WAM) — Australia’s Runner-Up Top LIC on the ASX
Since its founding in 1997, Wilson Asset Management has invested over $5 billion on behalf of over 130,000 investors in underappreciated Australian and international development firms.
WAM oversees eight LICs, the largest of which is WAM Capital.
Both the dividends and the returns are risk-adjusted and fully franked. The share price of WAM Capital is $1.82 as of this writing, representing a loss of 21% over the last year.
3. Argo Investments Ltd (ASX:ALI) — Next Best-Performing LIC on the ASX
Argo is among the oldest LIC listed on the Australian Stock Exchange, having been founded in 1946. Currently, it has 96,000 clients and invests roughly $7 billion annually on their behalf.
Dividends and other distributions received by Argo from the firms in its investment portfolio are the primary source of income.
Full franking dividends account for the vast bulk of the dividend payouts to shareholders. ALI shares are now priced at $9.11, down 2% from this time last year. This is not a terrible outcome, especially considering the present market situation.
4. BKI Investment Company Limited (ASX:BKI) — High-Performance LIC for Dividends
The parent firm of BKI is Brickworks Limited, the biggest brick maker in Australia. In the 1980s, Brickworks began building its portfolio of LICs, and in 2003, BKI went public on the Australian Securities Exchange (ASX).
BKI prioritises investments in reliable businesses with a track record of distributing dividends that are both attractive and rising in both size and frequency. The current price of BKI stock is $1.68, representing a 1-year return of 1.8%.
5. Metrics Master Income Trust (ASX: MXT) — Popular LIC on the ASX in Australia
Metrics is an expert in fixed income, private credit, equities, and capital markets. It oversees MXT as its asset manager. Metrics Trust (MXT) is an Australian-based investment vehicle that debuted on the Australian Stock Exchange (ASX) in 2017.
This trust was established to provide investors access to the competitive Australian business lending market, which is often controlled by financial institutions like banks.
Since its creation, the share price of MXT has been relatively stable at roughly $2. The Covid-19 epidemic was directly responsible for a 23% drop in share price, to $1.57. As of this writing, MXT’s return for the last year is -3%.
Best-Performing LIC on the ASX 📕: Your Aussie Buying Guide
Best-Performing LICS on the ASX: What Do They Do?
A LIC is a publicly traded company whose primary purpose is to acquire shares in other publicly traded businesses. LICs provide investors with professional money management from a dedicated staff, with returns proportional to the underlying company’s investment performance.
LICs often prioritise dividend yield, among other factors, when determining which firms to invest in. As a result, they all use unique investment techniques and put their money into diverse kinds of assets. Warren Buffett’s Berkshire Hathaway, one of the most well-known LICs, is likely to use a value investing strategy when determining which stocks to purchase.
Advantages & Disadvantages of the Best ASX LICS 💵
Investing in LICs has a few benefits: They are often less expensive than a managed fund due to lower transaction costs. LICs also provide a centralised location for access to several investment options and a wide selection of goods. You can locate LICs that pay dividends if you’re an income investor, and it’s usually possible to reinvest those dividends to take advantage of compound interest.
Cons: On the other hand, there are a few drawbacks to think about. Investors should be aware that LICs often don’t see rapid expansion. Consider them investments of the long term. The market might go down, so keep that in mind as well.
Due to their high correlation with the stock market, LICs often suffer the same fate as the market. Investors in LICs may also suffer difficulties with liquidity.
Investors wishing to sell LICs must wait for a buyer, and those looking to purchase must wait for a seller, since LICs lack a market maker (a company or person that buys and sells certain securities to provide liquidity and preserve fairness in the market).
Conclusion
Are LICs and LITs a good investment?
I always take this opportunity to remind readers of the importance of a clear mind. Before putting money into a Listed Investment Company (LICs) or Listed Investment Trust (LITs), you should evaluate your financial situation, risk tolerance, and investment objectives. Keep in mind that the past is not a predictor of future results while doing your due diligence on the asset you want to invest in.
Before putting your money into anything, be sure you know and understand it inside and out. Don’t rush through important documents like the PDS or yearly reports. An excellent investment now may not be so tomorrow, therefore it might be useful to keep up with investing news.
FAQs
LICs vs LITs: What distinguishes the two?
Generally speaking, LICs and LITs have a lot of similarities. The primary distinction is the tax treatment of income and capital gains. Income from underlying assets, such as dividends and capital gains, will be taxed as income for LICs.
In general, investors rather than LITs are responsible for paying tax on the net income and realised capital gains distributed to them by the LIT. However, there are tax breaks available to those who invest in LITs that aren’t available to those who invest in LICs. Do your homework if you’re not sure which option is best for you.
Where can I learn how to invest in LICs and LITs?
LICs and LITs are similar to stocks in that they are traded on a stock market like the ASX. Through an online share trading broker, you may get entry to the ASX.
The limited availability of buying shares from other investors and the set number of shares issued due to the closed-ended nature of these investments might reduce their liquidity. Open-ended funds, in contrast, may be purchased directly from the fund issuer and exchanged with other investors, much like most exchange-traded funds and managed funds.
Comparing LICs and ETFs
In many respects, LICs may be compared to ETFs. Both are similar to the share market in that they are investment funds. Investors in LICs get shares, whereas ETF investors receive units. LICs can only be invested in if you want your money actively managed, while ETFs provide you with the option of either passive or active management.
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