Investing in listed investment companies (LICs) is an increasingly popular option for investors looking to diversify their portfolios and gain exposure to a range of assets.
In this post, we will explore the advantages of investing in LICs, including their ability to provide diversification, closed-end structure, longer-term decision making, corporate governance, intra-day liquidity, premiums and discounts, and fully franked dividends.
Diversification through LICs
One of the key benefits of investing in LICs is the ability to diversify your portfolio across a range of assets. LICs can invest in a variety of assets, including equities, bonds, property, and alternative investments, providing investors with access to a broader range of opportunities than they might be able to achieve on their own.
Unlike traditional managed funds, LICs are structured as closed-end funds, meaning that they have a fixed number of shares on issue. This structure provides several benefits, including greater control over the investment portfolio and the ability to make longer-term investment decisions.
Ability to make longer-term decisions
LICs have the ability to take a longer-term investment horizon than traditional managed funds, as they are not subject to the same pressures to meet redemption requests from investors. This allows LICs to invest in assets that may require a longer holding period to realize their full potential, such as unlisted companies or infrastructure projects.
Public companies provide stringent corporate governance and accountability of Directors
LICs are listed on the Australian Stock Exchange (ASX) and are therefore subject to stringent corporate governance requirements. This provides investors with greater transparency and accountability from directors, who are required to act in the best interests of shareholders.
LICs trade on the ASX which provides intra-day liquidity
One of the benefits of investing in LICs is that they trade on the ASX, providing investors with intra-day liquidity. This means that investors can buy and sell shares in LICs throughout the day, allowing for greater flexibility and control over their investments.
Premiums and discounts
Another feature of LICs is that they can trade at a premium or discount to their net asset value (NAV). This can provide opportunities for investors to buy into a high-quality investment portfolio at a discount, or to sell out of a LIC at a premium to NAV.
Fully franked dividends
LICs are also known for their ability to provide fully franked dividends, which means that the company has already paid tax on the profits it distributes to shareholders. This can be particularly attractive for investors who are looking for regular income streams from their investments.
In conclusion, investing in LICs can provide investors with a range of benefits, including diversification, closed-end structure, longer-term decision making, stringent corporate governance, intra-day liquidity, premiums and discounts, and fully franked dividends. As with any investment, it is important to do your research and seek professional advice before making any investment decisions.
H&G High Conviction is an LIC managed by H&G Investment Management, find out more by clicking the button below.