Top LICs on the ASX and how they have performed

There are over one hundred Listed Investment Companies (LICs) listed on the ASX. So, while doing a deep dive into all of them isn’t feasible, we have looked at the biggest LICs by market cap. Here’s what we learned about some of the top players in the LIC market and their performance in the last year.

What are LICs?

But first, what are LICs? When you invest in LICs you are investing in a company that invests in other companies. LICs will have a team that actively manages money and the value of the LIC is reflected in how successful the company is at investing. Think Berkshire Hathaway, started by famous investor Warren Buffet. The American company is probably the most well known LIC.

However, Australia has its own LIC sector, which includes LITs (Listed Investment Trusts), and with a market capitalisation of just under it may be bigger than you thought, with a market capitalisation of over $46 billion.

Learn more about LICs.

What is the difference between LICs and LITs?

For the most part LICs and LITs are very similar. The key difference between them is the way income and capital gains are treated from a tax perspective. LICs will treat the dividends and capital gains from underlying investments as income, and will pay taxes on those earnings.

LITs will pay all their net income and realised capital gains to investors on a pre-tax basis and generally it is the investors who are liable to pay the tax. However, LIT investors are eligible to some tax discounts that LICs investors are not. If you are not sure which one is better for you, be sure to do your research.

How to buy LICs and LITs?

Just like investing in stocks, LICs and LITs are listed on a stock exchange, such as the ASX. You can access the ASX with an online share trading broker. However, they are closed-ended investment products, so while they can be traded on an exchange the number of shares available is fixed and are typically only able to be bought from another investor, this can affect their liquidity. On the other hand, open-ended funds, like most ETFs and managed funds, can be bought from the fund issuer as well as traded by other investors.

How have some of the biggest LICs performed?

Australian Foundation Investment Company Ltd (ASX: AFI)

By far the biggest LIC on the ASX, Australian Foundation Investment Company (AFI), has been investing in Australia and New Zealand since 1928. Their investment team manages money with a long-term lens, aiming to return strong profits for their investors, with a stream of fully franked dividends and capital growth. The company invests mainly in equities.

At the time of writing, AFI share price is around $7.60 which is 10% down on where they were this time last year. This is unsurprising given 2022 has seen a decline across many markets around the world, as investors struggle with increasing inflation and interest rate rises. Despite, a lackluster 1-year return AFI has recovered from the Covid-19 low in 2020, gaining 39%.

Argo Investments Ltd (ASX: ALI)

Founded in 1946, Argo is also one of the oldest LIC on the ASX. Today, they invest around $7 billion on behalf of 96,000 investors. Argo revenue is generated primarily from dividends and distributions received from the companies in their investment portfolio. The majority of that income is paid out to their shareholders as fully franked dividends. At the time of writing, ALI is trading at $9.11, which is down 2% from where they were this time last year. However, given the current state of the market this is not a bad result.

WAM Capital Ltd (ASX: WAM)

Wilson Asset Management was established in 1997, and they invest in more than $5 billion in undervalued Australian and global growth companies on behalf of over 130,000 shareholders. WAM actually manages eight LICs, with WAM Capital being the biggest. They offer fully franked dividends and risk-adjusted returns. At the time of writing WAM Capital’s share price is sitting around $1.82 and their one-year return is down 21%.

MCP Master Income Trust (ASX: MXT)

MXT is managed by Metrics, a corporate lender and asset manager specialising in fixed income, private credit, equity and capital markets. Metrics is based in Australia and their trust MXT is relatively new, officially listing on the ASX in 2017.

This trust aims to provide investors with direct exposure to the Australian corporate loan market, a sector typically dominated by banks. MXT’s share price has remained fairly steady since inception, hovering around $2 per share. However, the share price declined sharply due to Covid-19 pandemic, falling to $1.57, a decrease of 23%. At the time of writing, MXT’s one-year return is down 3%.

BKI Investment Company Ltd (ASX: BKI)

BKI’s parent company is Brickworks Limited, Australia’s largest brick manufacturer. Brickworks established a portfolio of LICs in the 1980s and BKI listed on the ASX in 2003. BKI is focused on investing in quality companies that have a long history of paying attractive and growing dividends. At the time of writing, BKI’s share price is $1.68, with a 1-year return of 1.8%.

Should you invest in LICs and LITs?

Before investing in LICs or LITs you should consider your own personal circumstances, tolerance of risk and investment strategy. Also, make sure you thoroughly research the asset you are looking to invest in and bear in mind that past performance is not an indicator of future performance.

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