Listed Investment Companies (LICs) 

LICs 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 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 

Investment companies are one of the oldest forms of managed investments, having first been listed on ASX in 1928. 

Their investment techniques and operational characteristics differ substantially from one product 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, investors should consider whether the managers attributes, investment style and underlying investment portfolio suites their own investment objectives. 

LICs are closed-end, 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. These techniques assist in providing investors with stable returns.

Investors in LICs own shares in the company while investors in an investment trust 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. Differences between companies and trusts

Investment companies can pay fully franked dividends like any other ordinary company and are set at the discretion of the manager.

Trusts 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. Dividends and imputation

The value of the underlying investment portfolio held in an LIC 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 may trade at a discount, premium or at par to its NTA.  Current and historical LIC Premiums / Discounts to NTA

LICs may be appropriate for investors seeking:

  • A diversified portfolio through a single investment
  • Returns from both capital appreciation and income
  • A tax managed investment with relative consistency in returns
  • Concentrated exposure to a specific investment sector