By Richard Livingston 27 May 2015

The case for listed investment companies

If you’re looking to invest in actively managed funds, an alternative option is ASX-listed LICs (listed investment companies). Richard Livingston explains how they work and considers their merits.

Snapshot

  • LICs are similar to managed funds, but are traded on the ASX
  • Share prices of LICs can trade at a premium or discount to the value of the portfolio they own
  • Potential investors need to keep a close eye on fees and costs

When it comes to the number of actively managed share funds, Australians are indeed spoilt for choice. No matter what your preference is – domestic or international, large or small, high profile or boutique – you’ll find a managed fund to fit your needs.

The number of managed fund options means that some investors overlook the listed investment companyA listed investment company (LIC) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. (LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information.). Like managed funds, LICs are a pooled investment where investors effectively own a piece of an underlying portfolio managed on their behalf.  But there are some key differences, as we’ll explain in a moment.

What is a LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information.?

As the name suggests, a LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. is an investment company listed on the ASX. Like managed funds, they buy and sell shares in other companies. There are LICs focusing on Australian shares, small cap shares, international shares and various specialist strategies (the full range is published at the ASX website).

You invest in a LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. by buying shares through your brokerage account, just as you would with other shares. If you want to redeem your investment, you sell the shares on-market.

A key characteristic of LICs is that they’re ‘closed-end’ funds. This means the LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. issues a certain number of shares and investors come and go by trading the shares with each other (on the ASX). It’s a big difference to managed funds, which are ‘open-ended’ – you apply to the manager to invest, or redeem your investment and they either issue new units, or cancel existing ones.

This is an important point, as it means LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. shares (being in fixed supply) can trade at a premium or discount to the underlying net tangible assetsNet tangible assets (NTA) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value. (NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value.) of the LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information., depending on investor demand for the underlying stock. If a LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. is trading at a premium you might buy the shares for $1.10 but only get exposure to a dollar’s worth of underlying investments. But if it’s trading at a discount, that dollar of investments could be yours for 90 cents.

Unlisted funds don’t trade at a premium or discount. That’s because the units are issued or cancelled according to demand, and always trade at NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value. (usually adjusted for a small buy/sell spreadThe 'buy/sell spread' is a small adjustment made to the value at which managed fund units are issued to investors, or redeemed. It's the manager's estimate of the transaction costs involved. Managed funds typically publish (daily) an 'entry price' and 'exit price'. The difference between these amounts and the per unit value of the fund is the buy/sell spread. to cover transaction costs).

The ‘closed-end’ nature of LICs is argued by proponents to be one of their benefits, and in principle we tend to agree. Capital in a closed-end vehicle is committed, so the manager can invest for the long-term without worrying about a rush of redemptions if short-term performance isn’t to investors’ satisfaction.

Large volumes of redemptions in an ‘open-end’ fund can cause the manager to have to liquidate investments, often when they’d prefer to buy rather than sell. It means managers of open-ended funds (especially if they’re small) need to keep one eye on short-term performance, potentially at the expense of long-term returns.

Another advantage of LICs is that they can undertake corporate activity that benefits long-term shareholders. When a LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information.’s shares trade at a discount (to NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value.), management can undertake share buy-backsA share buy-back is where a company repurchases (and cancels) its own shares. This can be done by buying the shares on-market (an 'on-market buy-back') or dealing directly with shareholders (an 'off-market buy-back')., which effectively shift value from those who sell out, to those who remain.

The flipside is that a LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information.’s shares can trade at a premium (to NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value.) for long periods of time and it can be difficult to justify paying more for the underlying portfolio than its worth. As a general rule, we advise against buying into a LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. trading at a premium to NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value., so effectively you’re forced to pass on investing until the premium disappears.

Similarly, a persistent discount (to NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value.) can make it tough to sell the shares of a LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information.. Those looking to redeem their investment are always at the mercy of the market.

Discounts are sometimes justified because an LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. has costs that are too high or there are other legitimate concerns; they’re not always an opportunity.

But premiums and discounts typically arise as a particular LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. goes in and out of favour with investors, depending on their investment portfolio performance, the availability of fully franked dividends, how well the LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. is communicated to investors and the quality of the management team.

Example: Platinum Capital Limited

Take Platinum Capital Limited (ASX Code: PMC) as an example. Back in 2011, international shares weren’t very popular. The combination of the GFC and a strong Aussie dollar, meant not only had PMC’s underlying portfolio performed badly but investors (especially retail investors) weren’t very interested in buying PMC’s shares.

At 31 December 2011, PMC had a per-share NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value. (they call it Net Asset Value) of $1.03, while its shares traded at 95 cents. That meant you could pick up a piece of the underlying portfolio at a discount of almost 8 per cent.

Fast-forward to 31 December 2014 and PMC’s shares were trading at $1.82, versus NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value. of $1.65 – a premium of more than 9 per cent. While there have been some dividends and a rights issueAn issue of the right to buy shares to the existing shareholders of a company. Typically rights issues entitle shareholders to subscribe for new shares at a discount to the prevailing market price. Rights issues may be renouncable (where the 'rights' can be transfered to other investors and may trade on the ASX) or non-renouncable (in which case investors must take up the new shares by the due date or lose the right to do so). along the way, we’ll ignore them in this example for simplicity.

The increase in PMC’s underlying portfolio (measured by NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value.) of 62 cents was a reflection of booming international share markets. As a result, investors took more interest in PMC and the buying pressure caused the shares to trade at a premium. If you invested in PMC in December 2011, not only did you pick up the 62 cent gain in the underlying share portfolio, you made an additional 25 cents as a result of the discount turning into a premium.

Imagine things had gone the other way and PMC was originally trading at a premium of 17 cents, which turned into a discount of 8 cents. In this case you’d have lost 25 cents of the underlying portfolio gain, almost halving the gains generated by the underlying portfolio.

The PMC example demonstrates why we generally won’t invest in LICs trading at a premium to NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value. (at least not a substantial one) and, where possible seek to invest at a discount. Buying at a premium is a drag on the potential returns, whereas investing at a discount can act as a potential turbo boost.

Let’s turn now to the tax rules for LICs.

Taxation of LICs

A LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. is a company, so it’s subject to the company tax rules. It pays tax on its income and gains at the corporate tax rate (currently 30 per cent) and pays dividends to its shareholders which (if it has paid tax) can carry franking creditsTax credits available to shareholders receiving 'franked dividends'. The credit represents tax already paid by the company and is able to be offset against a shareholders’ own tax liability. Any excess is refunded as cash to individuals and super funds. Also known as an 'imputation credits'. (franked dividends).

Managed funds, which are trusts, aren’t subject to company tax. Instead the income of the trust (including capital gainsThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time.) is distributed to the unitholders, who pay tax at their marginal tax rateYour marginal tax rate is the tax rate that applies to the last dollar of your income. Australia has a progressive tax system where the marginal tax rate applied to individuals increases as your taxable income decreases. Current individual tax rates can be found at the ATO website..

In the case of dividend income earned on the portfolio, resident investors should end up with the same after-tax result (ignoring timing differences) whether they invest via a LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. or managed fund. The tax paid by the LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. generates franking creditsTax credits available to shareholders receiving 'franked dividends'. The credit represents tax already paid by the company and is able to be offset against a shareholders’ own tax liability. Any excess is refunded as cash to individuals and super funds. Also known as an 'imputation credits'., which reduce the tax bill of shareholders by an equal amount (or are refunded) when a dividend is paid (see the example in Table 1).

But for capital gainsThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time. it’s a different story, because of the capital gainsThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time. discount (on assets held for more than 12 months) available to individuals and super funds. Individuals get to exclude 50 per cent of their capital gainsThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time. from their taxable income, while super funds (including SMSFs) get to exclude 33 1/3 per cent.

Ordinarily this would put LICs at a disadvantage to managed funds. While managed funds could distribute their capital gainsThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time. (free of tax) to their unitholders (who can then utilise the relevant discount) LICs would be subject to tax on the entire capital gainThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time. at 30 per cent.

For this reason, in 2001, the government introduced special rules allowing LICs to classify a portion of dividends paid to shareholders as ‘LIC capital gain amounts’, reflecting any capital gainsThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time. made by the LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information.. To level the playing field with managed funds, investors are allowed to deduct, from their taxable income, 50 per cent (individuals) or 33 1/3 per cent (super funds) of any ‘LIC capital gain amount’ they receive.

Table 2 shows an example of the tax calculation for a trust and LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. with a single super fund shareholder. Overall, the shareholder ends up with the same after-tax return in each case.

An important point to note here is that the distribution of LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. capital gainThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time. amounts and franking creditsTax credits available to shareholders receiving 'franked dividends'. The credit represents tax already paid by the company and is able to be offset against a shareholders’ own tax liability. Any excess is refunded as cash to individuals and super funds. Also known as an 'imputation credits'. depends on the LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. paying a sufficient dividend. If the LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information.’s management decided not to pay out a dividend (or an insufficient dividend) these would be ‘trapped’ in the LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information..

Post-tax (or after-tax) NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value.

Another area where tax raises its ugly head is in the calculation of after-tax NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value.. The figures we used for PMC were pre-tax NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value. figures, but you might have noticed its announcements also include an after-tax NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value. amount. LICs publish an after-tax NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value. that includes a provision for CGTCGT (capital gains tax) is the tax payable on capital gains. Where assets are held 12 months or more, individuals are entitled to a 50% discount when calculating the taxable amount of a capital gain. Super funds are entitled to a 33.33% discount. Where assets are held less than 12 months, capital gains are taxed at normal rates. Note also that some assets are exempt from CGT. (at the company tax rate of 30 per cent) on unrealised capital gainsThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time..

The reason they do this is because new shareholders effectively take on the responsibility for this potential tax bill when they buy into the LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information.. Fortunately, for super fund shareholders in particular, it’s not too much of an issue in practice.

Let’s return to our PMC example. At 31 December 2011, the after-tax and pre-tax NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value. numbers were equal (it didn’t have overall unrealised gains at that time). But by 31 December 2014, it had generated a potential CGTCGT (capital gains tax) is the tax payable on capital gains. Where assets are held 12 months or more, individuals are entitled to a 50% discount when calculating the taxable amount of a capital gain. Super funds are entitled to a 33.33% discount. Where assets are held less than 12 months, capital gains are taxed at normal rates. Note also that some assets are exempt from CGT. bill on unrealised gains of 9 cents (after-tax NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value. was $1.56).

Fortunately, this theoretical CGTCGT (capital gains tax) is the tax payable on capital gains. Where assets are held 12 months or more, individuals are entitled to a 50% discount when calculating the taxable amount of a capital gain. Super funds are entitled to a 33.33% discount. Where assets are held less than 12 months, capital gains are taxed at normal rates. Note also that some assets are exempt from CGT. amount is irrelevant to many investors. Firstly, many LICs are long-term investors and don’t sell investments that often. In the case of PMC the 9 cents per share tax bill may not be crystallised for years, or decades.

That’s because PMC can treat a portion of its dividend payment as an ‘LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. capital gainThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time. amount’, individual and super fund shareholders will only end up taxed on the discounted amount of any capital gainThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time.. Any tax paid by the LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. on the capital gainThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time. is passed to shareholders as a franking creditA tax credit available to shareholders receiving a 'franked dividend'. The credit represents tax already paid by the company and is able to be offset against a shareholders’ own tax liability. Any excess is refunded as cash to individuals and super funds. Also known as an 'imputation credit'., so they end up with a tax offset (or refund) for any ‘excess’ tax paid by the LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information..

Effectively, shareholders of LICs end up taxed on any capital gainsThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time. at their own tax rate, not the company tax rate. In the case of super funds, that’s 10 per cent (taking into account the 33 1/3 per cent capital gainsThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time. discount) or zero (if the super fund is in pension mode).

Table 3 shows the after-tax result for super fund shareholders if PMC were to crystallise its capital gainsThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time.. Just remember, as we said above, this assumes PMC pays a sufficient dividend to pass through the LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. capital gainThe profit that an investor makes when they sell an investment or (if unrealised) the profit they would make if they sold the investment for its value at that time. amount and franking creditsTax credits available to shareholders receiving 'franked dividends'. The credit represents tax already paid by the company and is able to be offset against a shareholders’ own tax liability. Any excess is refunded as cash to individuals and super funds. Also known as an 'imputation credits'..

Fees and costs

Like managed funds, LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. fees and costs vary significantly. For instance, two of the largest, longest established LICs – Argo Investments (ASX Code: ARG) and Australian Foundation Investment Company (ASX Code: AFI) – have Management Expense Ratios (MERs) of less than 0.2 per cent.

A more expensive example is Global Resources Masters Fund (ASX Code: GRF), which is likely to have annual costs of 2 to 3 per cent of its portfolio. While it’s quoted as having an MER of 1 per cent, that’s only its direct costs. It invests in managed funds that have their own separate management fees that aren’t included in the MER or itemised in the accounts. When it comes to LICs and their overall costs, you really need to do your homework (and may need to hound the investor relations team to get an answer).

It’s also important to consider the market capitalisation of a LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information., since many of its costs are fixed. In the case of smaller LICs (like GRF) these extra costs can make a big difference to the overall MER, while for AFI (which manages a portfolio in excess of $6 billion) they have little impact.

If you’re considering investing in a small LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information., keep in mind that the extra costs will eat into the future performance. Generally, we suggest waiting for a large discount to NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value. to open up before investing in a small (or expensive) LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. (assuming the discount isn’t indicative of a more serious problem).

Costs are also an issue when a LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. is first launched, as the upfront costs and fees are paid out of the money raised from investors. If you apply for a share for a dollar, the underlying assets might only be worth say 97 cents. For this reason, it’s often better to avoid the initial float of a LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information..

The case for LICs

LICs offer the benefits of a ‘closed-end’ structure and the chance for new investors to pick up shares at a discount to NTANTA (net tangible assets) is calculated as the total assets of a company (or trust) minus the value of intangible assets (goodwill, patents etc) and any liabilities. It's a measure of an entity's value and is often quoted as a per share (or per unit) figure. NTAs are used in a variety of contexts and it's important to note that in some cases they aren't a particularly up to date measure of value. (and sell them at a premium). But potential LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. investors need to make sure they don’t end up on the wrong side of the premium/discount dynamic, or a shareholder in a LICA LIC (listed investment company) is a pooled investment vehicle, similar to a managed fund. The main differences are that a LIC is a company (not a trust) and it's listed on the ASX. See our article on LICs for more information. that’s too expensive, or too small to effectively cover its annual costs.

Keep an eye out for a Product Review on one of the international LICs – Magellan Flagship Fund – to be published shortly.

 

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