All about Listed Investment Companies (LICs)

TL;DR

This podcast discusses listed investment companies (LICs) and highlights their benefits, such as dividend smoothing and more control over distributions, while also discussing their limitations compared to ETFs.

Transcript

good day and welcome to the investor motivation podcast welcome Amy hello Rob how are you do today I'm well thanks how are you yeah I'm very well maybe slightly a little bit better than you ah we're talking football now are we so uh blue supporter and and the lion supporter there you go well done you you guys were far too good for three quarters we... Read More

Key Insights

• 😋 LICs offer investors the opportunity to have an actively managed and diversified portfolio without the need to make individual investment decisions.
• 😋 Dividend smoothing is a benefit of LICs, providing steady income in years when companies may reduce or halt dividends.
• 😋 Fees for LICs can vary, with older and more established LICs often charging lower fees compared to newer ones.
• 😋 LICs have the potential for underperformance compared to the index, especially in the past 10 years.
• 😋 Liquidity is generally not an issue for popular LICs, making it easy to buy and sell shares.
• 😋 The high level of franking credits in LICs can benefit retirees, providing additional income through tax refunds.
• 😋 LICs offer exposure to Australian assets and businesses, allowing investors to support local companies.

Questions & Answers

Q: How do ETFs differ from LICs in terms of tax structure?

ETFs, like managed funds, have to distribute all income and capital gains each year, leading to potential tax planning issues. LICs are internally taxed but can choose not to pay dividends, offering more flexibility.

Q: Are LICs actively managed?

Yes, LICs are typically more actively managed than ETFs, with 60 to 100+ investments in their portfolios. They actively seek new investment opportunities while also holding some older, more mature businesses.

Q: How easy is it to buy and sell LICs?

Brokerage costs for LICs are low, and many brokerage platforms, including mobile apps, allow for easy buying and selling of LIC shares. Liquidity is generally not an issue for popular LICs.

Q: Can LICs invest in asset classes other than businesses?

LICs primarily invest in businesses, but there may be some variations that invest in overseas markets or other assets. However, the focus is usually on businesses and industries.

Summary & Key Takeaways

• LICs have been around for decades and offer investment options that differ from ETFs.

• Peter Thornhill, a fan of LICs, expressed his disdain for ETFs due to their tax structure.

• LICs provide more control over distributions and can choose to withhold dividends in certain years.

• Comparing the performance of LICs to the index reveals some underperformance in the past 10 years.