Many investors are keen on becoming involved with a single position that can offer a wide range of underlying assets. In the majority of cases, managed funds tend to be the first option. It should nonetheless be observed that there is an alternative known as a Listed Investment Company (LIC). These are excellent vehicles that will provide a higher level of diversification while LICs are also known as being a conservative approach when compared to directly investing in an ASX-listed company. Let us take a look at how Listed Investment Companies work as well as a handful of their most notable benefits.
The Principles Behind Listed Investment Companies
Another term for a Listed Investment Company is a Listed Management Investment. As the name may already hint, a trader can become involved within a professionally controlled portfolio that could contain properties, shares and deposits which will garner interest over time. These assets can either be located in Australia or be based within the international community. An LIC is also very convenient, as the investor can buy or sell any holdings much in the same way as a normal share would be manipulated.
Some Predominant Characteristics
As a general rule of thumb, the majority of Listed Investment Companies allocate their income through vehicles commonly known as fully franked dividends. The main feature to note here is that the standard company tax of 30 per cent has already been paid. This allows returns to be more transparent when compared to some other investment vehicles. Some examples of Listed Investment Companies can include:
- Domestic Australian Shares (Argo, the Australian Foundation Investment Company).
- Small market cap shares (Contango Microcap).
- International holdings (Platinum Capital).
This level of diversification is ideally suited for the investor who wishes to accumulate a predictable level of wealth without having to be overly concerned about market volatility.
The typical LIC enjoys excellent levels of transparency. As it is required to adhere to all of the stipulations and corporate governance requirements put forth by the ASX, these assets tend to be more transparent than many privately managed funds.
Secondly, Listed Investment Companies tend to be very liquid. As mentioned previously, the majority can be openly traded on the Australian Securities Exchange much like any typical share. We should note that smaller LICs may be thinly traded and therefore, more difficult to liquidate.
The cost of holding the LIC is a final benefit to address. The overall Management Expense Ratio is considered to be much lower than managed funds which are not fully listed. Internal management costs are likewise significantly less. However, this is assuming that the investor is taking a buy-and-hold approach as opposed to searching for a quick turnaround.
It should now be clear that Listed Investment Companies offer some unique advantages that cannot normally be enjoyed with typical managed funds. Still, it is a good idea to develop a further understanding of these vehicles before venturing into a trade.