Alan Kohler's the Eureka Way by Alan Kohler

Author:Alan Kohler
Language: eng
Format: epub
Publisher: HarperCollins Publishers
Published: 2007-07-14T16:00:00+00:00

Listed investment companies

Listed investment companies (LICs) can be considered a close relative of managed funds. LICs are ASX-listed companies carrying on the business of managing an investment portfolio. Investing in an LIC means that you become part-owner of the underlying investment portfolio (and the investment manager’s skill). This is very similar to what you get as an investor in a managed fund.

Listed investment companies are some of the cheapest managed investments available. For example Argo, a long-established LIC that manages an Australian share portfolio, has a management fee of 0.15 per cent of the company’s portfolio and Australian Foundation Investments and Carlton Investments have management fees of 0.12 per cent. These are more than ten times cheaper than the average retail managed fund fee of just over 1.8 per cent. The performance of these LICs has also been strong, with the five-year annual return to 30 September 2006, being 18.1 per cent a year for Argo, 17.96 per cent for Australian Foundation Investments and 24.62 per cent a year for Carlton Investments.

The combined market value of LICs in Australia is about 2.5 per cent of the total value of managed funds — a tiny fraction of the managed investment industry. Even though many LICs are very low cost, have excellent performance histories and have similar characteristics to managed funds, they occupy a much smaller position on the Australian investment landscape. This is largely due to the fact that managed funds pay a commission to financial advisers who recommend them, and LICs do not.

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