Listed Investment Companies (LICs) & Listed Investment Trusts (LITs)
Listed Investment Companies (LICs) and Listed Investment Trusts (LITs) operate in a similar way as they both provide exposure to a diversified portfolio of investments on behalf of their investors. These investments may include Australian shares, international shares, private equity and specialist sectors such as wine and resources.
LICs and LITs can therefore be classified into four broad categories:
- Australian Shares - investing principally in shares listed on ASX
- International Shares - investing principally in shares listed on international stock exchanges
- Private equity - investing in Australian or international unlisted private companies
- Specialist - investing in special assets or investment sectors such as wineries, technology companies, resources, and telecommunications
Their investment techniques and operational characteristics differ substantially from one entity to the next, and their investment approach can range from very conservative to aggressive. The investment manager may either be internal, as part of the company, or external where a separate organisation is managing the portfolio under contract from the company.
When selecting an LIC or an LIT, investors should consider whether the manager's attributes, investment style and underlying investment portfolio suits their own investment objectives.
LICs are closed-end vehicles, meaning they do not regularly issue new shares or cancel shares as investors join and leave the fund. Instead, investors buy and sell to each other on 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 however set at the discretion of the manager.
Unlike LICs, LITs can however have an open-ended structure meaning that the number of units on issue can vary as investors can either trade these shares on ASX or buy and sell directly with the Trust. Further, while investors in LICs own shares in the company investors in LIT own units. Both vehicles offer investors exposure to the underlying portfolio of assets although there may be different tax treatments and the way dividends or distribution are handled.
While LICs can pay fully franked, LITs on the other hand are obliged to pay out all surplus income in the form of distributions, carrying the franking levels upon which are produced by the underlying investments.
Net Tangible Assets
The value of the underlying investment portfolio held in an LIC or LIT on a per share basis is referred to as its Net Tangible Assets (NTA). The on-market price of an investment company relates to its NTA, but ultimately is determined by supply and demand. Therefore, an LIC or LIT may trade at a discount, premium or at par to its NTA. Current and historical LIC Premiums / Discounts to NTA data is now available.
List of LICs and LITs
ASX in conjunction with Morningstar produce quarterly performance reports on LICs and LITs. These reports highlight all of the LICs and LITs that comprise the sector together with their ASX code, market cap and performance data. Click here to access this information.