LICs & LITs

About Listed Investment Companies (LICs)

Listed Investment Companies (LICs) are publicly traded companies that invest in a diversified portfolio of assets, aiming to provide shareholders with capital growth and/or income. 

LICs offer an alternative investment vehicle for individuals seeking to access managed investments which are traded on a stock exchange.

What are LICs?

LICs are companies that pool investor capital to invest in a range of assets, including equities, fixed income, and property. 

Unlike traditional managed funds, LICs are structured as companies, and they listed on stock exchanges which allows investors to buy or sell their shares in real-time. 

Each LIC typically has an investment mandate that outlines its investment strategy, risk profile, and target sector.

Types of LICs

There are several types of LICs, including:

• Equity LICs: Invest primarily in stocks across various sectors.
• Bond LICs: Focus on fixed-income securities.
• Sector-specific LICs: Target specific industries (e.g. technology, healthcare).
• Hybrid LICs: Combine both equity and fixed-income investments.
• Global LICs: Invest in international markets.

Features and Risks of LICs

Features of LICs

There are three main features of LICs:

• Liquidity: Shares can be bought or sold on the stock market at prevailing market prices.
• Diversification: Investors gain exposure to a range of assets through a single LIC.
• Professional Management: LICs are managed by professionals with expertise in the required investment strategies.

Risks of LICs

There are three main risks of LIC investing:

• Market Risk: Share prices may fluctuate based on market conditions.
• Management Risk: LIC performance is dependent on the skills of the management team.
• Liquidity Risk: Some LICs may have lower trading volumes, affecting investors’ ability to buy or sell shares quickly.

How to Compare LIC

When comparing LICs, investors should consider:

• Performance History: Review past performance against benchmarks and peers.
• Fees and Expenses: Analyse management fees, operating expenses, and any other costs.
• Investment Strategy: Understand the LIC’s investment mandate and asset allocation.
• Discount/Premium to NAV: Determine how the market price compares to the LICs net asset value (NAV). Buying LICs at a discount to NAV can offer a compelling opportunity if the NAV discount narrows in the future.
• Dividend Yield: Examine historical and projected dividend pay-outs.

Ways to Invest in LICs

Investors can invest in LICs through:

• Direct Purchase: Buying shares through a broker or trading platform like any other publicly traded stock.
• Investment Platforms: Some investment platforms allow easy access to LICs alongside other investment options.
• Superannuation: Investors can generally allocate a portion of their superannuation to LICs.
• Self-Managed Superannuation Funds (SMSFs): Investors may include LICs as part of their self-managed retirement strategy.
• Robo-Advisors: Automated investment platforms that may utilise LICs in their portfolios.

Investing in LICs Conclusion

LICs represent a valuable asset class for investors seeking a combination of diversification, professional management, and potential income generation. 

By understanding their structure, types, features, and associated risks, investors can make informed decisions. 

Careful comparison and consideration of investment strategies are crucial for investors aiming to use LICs to maximize their returns.