This article appeared in a past edition of the ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.

New breed of Listed Investment Companies

Although listed on ASX for over 70 years, Listed Investment Companies (LICs) have recently become a popular way for investors to get exposure to a variety of shares. With 8 new LIC listings, 6 in the process of listing on ASX, and a significant number in the pipeline, the spectrum of investment styles and investment exposures now available have widened considerably. For investors this means constructing a balanced portfolio of shares has never been easier, however this also means investors need to do their homework in selecting the appropriate LIC to suit their investment objectives.

LICs operate in the same way as other companies, except their business is to invest in other listed companies and provide investors with a diversified portfolio of shares. An investor's exposure is very similar to a traditional managed fund - having up to 200 different shares in their portfolios. LICs can be bought anytime during ASX trading hours through any licensed adviser.

The 'new breed' of LICs use different investment strategies to traditional LICs. Typically, LICs have used a 'buy and hold' approach to their investing with diversification across a large number of shares. Clime Capital, and the soon to list Peters Macgregor and PPM Investments will adopt a more active management style. Their philosophy is to have a concentrated portfolio of no more than 20 shares and to be active in seeking to outperform sharemarket indices.

Global Mining Investments (GMI) and Contango Microcap have added investment exposures that were previously limited in LICs. In a first for LICs, GMI will provide investors with exposure to a global portfolio of resource companies and will be managed by Merrill Lynch Investment Management. Contango will join the likes of WAM Capital and Mirrabooka with exposure to small to mid caps using a 'top-down approach'.

A common feature of the new LICs has been free options attached to the shares in the initial public offer. This allows holders to purchase more shares before a particular date and for the manager, to raise further funds under management. If the fund manager performs well and the LIC on-market price is greater than the exercise price this can produce attractive returns.

LICs have traditionally been a low cost investment. Typically management fees range from 0.20 per cent to 1 per cent per annum for LICs as compared to 2-4 per cent for well-known managed funds. On a $50,000 investment this equates to $70 to $400 in fees in the first year of investing in a LIC, compared to over $900 for an unlisted fund. Performance fees have been adopted by most new LICs to provide an incentive for out performance of benchmarks like the All Ordinaries Accumulation Index.

In the past information on LICs has been limited. A good source of information is now available from the links above.

ASX is interested in your thoughts, please email any comments or feedback on this article.