Invest
Four ways to tell if LICs are right for you
Listed investment companies have experienced “significant growth” and are being “embraced” by SMSFs looking for “direct access” to active managers, an investment service has said.
Four ways to tell if LICs are right for you
Listed investment companies have experienced “significant growth” and are being “embraced” by SMSFs looking for “direct access” to active managers, an investment service has said.
The chairman of Wilson Asset Management, Geoff Wilson has said in a Morningstar report that listed investment companies (LICs) are an “incredibly popular asset class”. Further, in the 19 years since Mr Wilson floated Wilson Asset Management capital, SMSFs have grown from 15 per cent of the total value of the asset management service to “a little over 60 per cent”.
“That is $3 million 19 years ago [versus] $720 million now. And as a sector, the SMSF sector has embraced LICs and ETFs.”
He explained that the appeal of the asset classes lay in their respective capacities to “get direct access to asset managers through the LIC structure and passive managers through ETFs”.
Continuing, Mr Wilson highlighted four characteristics of LICs that investors should be aware of when determining if the asset class is right for them.
1. “The first thing is performance,” Mr Wilson said.
“The LIC or the manager has to perform, so you [need to] look at that over one year, two years, three years and try to guess or assume what they’ll do going forward.”
2. The second factor is yield, Mr Wilson said, calling this element “very important”.
It’s crucial that investors get a good and sustainable yield, the chairman said, noting: “The great thing about the LIC structure is you can have the ability to pay a growing stream of fully franked dividends over time and the boards have the ability to effectively smooth dividends to give them to shareholders.”
3. According to Mr Wilson, the third key is the fact that “the board and the manager have to treat shares with respect”.
He explained that with LICs, it’s not about raising capital at a discount to assets or “various things like that”.
4. The fourth and final characteristic Mr Wilson highlighted was the need of LICs to “engage” with the shareholders.
“Your shareholders own the company,” Mr Wilson said. “Really, it’s to also have a communications strategy that can find more shareholders so hopefully it can drive the share price to possibly NTA or even a premium.”
Mr Wilson added that the difference between traditional and less-orthodox LICs lies in the way they are managed. Traditional LICs “tend to be internally managed and they tend to take a very long-term view and be not as active as the other group of LICs”.
“The other group of LICs – which you’d probably classify as actively managed LICs – are externally managed and they’re a lot more active in terms of how they manage their money.”
Additionally, the actively managed LICs are the more recently listed, with most listed “over the last 20 or 30 years” in that structure, Mr Wilson said.
In recent months, the question of whether the strong rate of growth of LICs will continue has been under the spotlight. Research house Zenith’s senior investment analyst Justin Tay has expressed scepticism, arguing that the growth and contraction in LIC listings is cyclical and linked to stock market performance.
Speaking in a review of the sector, Mr Tay said earlier this year: “Given this belief about the cyclicality of LIC listing growth, with investor and market sentiment key drivers, we expect that the current rate of growth in the sector is unlikely to be sustained over the medium to long term."
Property
Millennials believe first home buyers need more support
Australia’s up-and-comers in the housing market say more needs to be done to slow rising house prices. ...Read more
Property
3 in 4 borrowers in trouble are in lockdown: ANZ
Despite offering support, ANZ said freezing home loan repayments will be the last resort, as three in four requests for support stem from NSW. ...Read more
Property
RBA gives APRA’s use of macro tools a tick of approval
Ahead of an expected move to impose tougher lending rules on the banks, the Reserve Bank has looked into previous attempts by APRA to cool the housing market. ...Read more
Property
Federal incentives are driving more first home buyers into the market
While property prices continue to grow, new research suggests that the government’s current crop of first home buyer incentives is having an impact on this segment of the market. ...Read more
Property
Why it now costs 130% more to service a mortgage than 3 decades ago
The lifetime cost of owning a home has increased by over 130 per cent in just three decades, new research has revealed. ...Read more
Property
Using the 30/30/3 rule for home buying during uncertain times
Thinking of buying a home? Uncertain economic times may have you double guessing your purchase, but the 30/30/3 rule can help you make this a reality. ...Read more
Property
Rental yields reach decade high, but not all markets move at the same pace
Changing consumer preferences towards lifestyle destinations and a lack of supply have led to record national price growth, albeit price fluctuations vary region-to-region, fresh figures show. ...Read more
Property
What younger Australians are getting wrong about home loans
As young Australians look to fight the odds and take their first step onto the property ladder, more and more are making easy mistakes. ...Read more
The Olympic effect on property and equity investors; COVID-19 Disaster Payments and super
Listen now
Do lockdowns boost property prices? Are short-sellers levelling the playing field? Did you lodge your tax returns early?
Listen now
Will lockdowns halt the housing boom? Is the metaverse taking over? And the cons of lodging your tax returns early
Listen now
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Property
Millennials believe first home buyers need more support
Australia’s up-and-comers in the housing market say more needs to be done to slow rising house prices. ...Read more
Property
3 in 4 borrowers in trouble are in lockdown: ANZ
Despite offering support, ANZ said freezing home loan repayments will be the last resort, as three in four requests for support stem from NSW. ...Read more
Property
RBA gives APRA’s use of macro tools a tick of approval
Ahead of an expected move to impose tougher lending rules on the banks, the Reserve Bank has looked into previous attempts by APRA to cool the housing market. ...Read more
Property
Federal incentives are driving more first home buyers into the market
While property prices continue to grow, new research suggests that the government’s current crop of first home buyer incentives is having an impact on this segment of the market. ...Read more
Property
Why it now costs 130% more to service a mortgage than 3 decades ago
The lifetime cost of owning a home has increased by over 130 per cent in just three decades, new research has revealed. ...Read more
Property
Using the 30/30/3 rule for home buying during uncertain times
Thinking of buying a home? Uncertain economic times may have you double guessing your purchase, but the 30/30/3 rule can help you make this a reality. ...Read more
Property
Rental yields reach decade high, but not all markets move at the same pace
Changing consumer preferences towards lifestyle destinations and a lack of supply have led to record national price growth, albeit price fluctuations vary region-to-region, fresh figures show. ...Read more
Property
What younger Australians are getting wrong about home loans
As young Australians look to fight the odds and take their first step onto the property ladder, more and more are making easy mistakes. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
