If 24 LICs ran the Melbourne Cup, which ones would we back?

How time flies. Welcome to the ninth running of the Affluence LIC Melbourne Cup! We do this analysis every day, but it’s that special first Tuesday of November when we publish our form guide for all to see.

As a reminder or introduction to new readers of our guide, to win the real Melbourne Cup requires a horse that is well-trained, has a great jockey, and hasn’t been hit too hard with a weight handicap from the stewards. 

To win the Affluence LIC Cup, an LIC requires many of the same attributes. They require a great trainer (the investment manager), an opportunistic jockey (the individual portfolio manager responsible for investment decisions), and a favourable handicap (starting discount or premium to NTA). Get all that right, and a good result for the owners (shareholders) will surely not be too far away.

There is over $55 billion of gamblers' (investors') money at stake in the Listed Investment Company sector, which makes it significantly bigger than the Melbourne Cup.

The last year has seen a flood of new fixed-income LITs, coinciding with the announced wind-down of the listed hybrid sector. Fixed income managers have flooded the market with new offerings, and existing fixed income LITs have had little trouble in completing secondary raisings. 

Every month, there has been a new raising to offer investors, with the vast majority closing well ahead of time. These raisings have centred around the private credit sector by established managers. 

They have been snapped up by financial advisors and retail investors due to the combination of relatively strong income yields, monthly distributions and a listed structure. It’s unclear if investors truly understand the underlying investments they are buying, or the potential for these securities to trade at a discount. However, for the moment, these LITs are the flavour of the month.

We can’t see any of the income LITs having the speed to win the Affluence LIC Cup, unless there is a torrential downpour and the track turns very heavy, so we’ve not picked many runners from that sector for this year's race.

Last year's picks delivered an average 47% return

Before we review the field for this year's race, let’s review our top picks from last year. 

Salter Brothers Emerging Companies (ASX: SB2). SB2 didn’t run quite as fast as we had hoped, but it was a race of two halves. For the period from October 2025 to January 2025, it returned 16%. From January to September, it gave back 11%, with the result for the 12 months up 3%. Not a disaster, but we still believe there is way more pace in this runner and it remains one of our favourites.

Ryder Capital (ASX: RYD). This runner had a great start and didn’t fade at the end. For the 12 months to September 2025, RYD returned an outstanding 41% for its punters. This return was from the underlying portfolio, with the discount to NTA remaining stable. Again, this remains one of our more trusted thoroughbreds.

Lion Selection Group (ASX: LSX). We called it, and LSX bolted. For the 12 months to September 2025, this golden runner returned 97% for its backers, through a combination of strong underlying returns and a closing of the discount. It would be a brave punter to expect such a strong race again this year; however, when racing on a gold track, who knows?

Who would make the cut?

We have analysed the field of over 80 LICs, and here, in no particular order, are our 24 starters for the “Race that Stops the Investing Nation”.

Pengana Private Equity (ASX: PE1)

• Starting Handicap: 20% discount
• Form Guide: This horse has U.S.-based private trainers and was heavily backed by racegoers early in its career in 2019. The legs appeared to fall off this runner in early 2025 when it cratered to a more than 35% discount. Has recovered well and still has some potential speed from here.

Lion Selection Group (ASX: LSX)

• Starting Handicap: 10% discount
• Form Guide: One of the winners from last year's race that showed a ridiculous turn of pace. A smaller horse that has been around for a long time. Very specialised training regime that works well in very specific race conditions. Hard to predict its pace from here after such a blistering run.

NAOS Ex-50 (ASX: NAC), NAOS Emerging (ASX: NCC) and NAOS Small Cap (ASX: NSC)

• Starting Handicap: 5-15% discount
• Form Guide: Coming off a season of chaos, who knows what this year's race has in store for these three stablemates. The last year has seen tumbles and falls, gutsy comeback rides and everything in between. The jockey and trainer must have nerves of steel, as they have saddled up and are ready to go again.

NGE Capital (ASX: NGE)

• Starting Handicap: 20% discount
• Form Guide: Continues to outperform the vast majority of runners; however, it remains under most punters' radar. NGE has a real advantage due to its small size and unconventional training strategy. Likes to take chances and could be a real challenger. Distantly related to the bigger and well-backed LSF.

WAM Alternatives (ASX: WMA)

• Starting Handicap: 12% discount
• Form Guide: This horse continues to be a mid-pack plodder. The trainers have tried hard to get the punters behind it, but the discount refuses to go away. Recent races have been decidedly average. The trainer recently offered to stand down, but only if the horse was retired from racing. The owners decided to stay in the race. Hard to see enough pace for a victory, but we are expecting a better performance this year.

Salter Brothers Emerging Companies (ASX: SB2)

• Starting Handicap: 30% discount
• Form Guide: Plenty of promise coming into this year's race. The trainer focuses their efforts towards the smaller end of the market, which can be unpredictable. Largest owner has been consistently buying others out. The value on offer plus the very generous handicap means this is definitely one to watch.

Acorn Capital (ASX: ACQ)

• Starting Handicap: 25% discount
• Form Guide: It has been a good year for this runner with strong underlying portfolio returns. This trainer focuses on small and micro-caps, which have delivered some success. Regardless of the strong performance, the discount has increased from 20% to 25%, which definitely puts this horse in with a chance.

CD Private Equity Series (ASX: CD1, ASX: CD2, ASX: CD3)

• Starting Handicap: 35-40% discount
• Form Guide: These three stablemates have not been popular with the punters for quite a while, and the discounts have increased over the past year. We have done very well backing them over the years, and we continue to believe that between the handicap and the US trainer, they are worth a bob each way.

Metrics Master Income Trust (ASX: MXT)

• Starting Handicap: 3% discount
• Form Guide: Given the huge wagers punters are putting into debt LITs right now, the largest of them all is lining up. This horse and trainer just keep getting bigger. Punters have recently gone off it a bit, and while it may not be the fastest galloper, it has certainly proven its staying power. While unlikely to win outright, there is very little chance it will be anywhere near the back.

MFF Capital Investments (ASX: MFF)

• Starting Handicap: 10% discount
• Form Guide: If the race was three times around, this big mare would be leading from the front. Australian jockey but does most of its training on US tracks. Very impressive runner. The jockey continues to update punters with detailed monthly track notes, however we are still none the wiser what the notes actually mean.

Australian Foundation Investment Co (ASX: AFI)

• Starting Handicap: 10% discount
• Form Guide: We thought the stewards had been harsh with their handicap last year; however, it got worse during the year. Has recovered back to 10%, which is still incredibly generous given history. Largest horse in the field and still a solid racer. Usually around mid-pack but struggles to have the top speed to win in any given year. If you only like to back big horses, have a go at this one.

Regal Investment Fund (ASX: RF1)

• Starting Handicap: 10% discount
• Form Guide: Back in March, the jockey pushed too hard and the horse had a misstep, which caused both horse and jockey to go for a tumble. Since then, both have recovered well and are back to their normal impressive pace. One of the wilier jockeys in the field and would never bet against them.

Lowell Resources Fund (ASX: LRT)

• Starting Handicap: 20% discount
• Form Guide: One of the very fastest runners from last year, proving just how fast a horse can run when it follows this training method. Performance came from the underlying portfolio, with the stewards maintaining a similar handicap to last year. Race conditions were perfect for the horse last year and if they stay the same, could deliver another very strong performance.

Platinum Capital (ASX: PMC)

• Starting Handicap: Par
• Form Guide: New jockeys and a revamped trainer. Its old stablemate, PAI, has retired, and while PMC was slated for the same fate, it has zigged and zagged to run on. This will be the second runner for the new jockeys, and the only speed they know is flat out. We are expecting significant improvement following the change in training methods.

Bailador Technology (ASX: BTI)

• Starting Handicap: 35% discount
• Form Guide: The trainers and jockeys have continued to do a very impressive job with this runner. They have had some very strong wins in lead-up races and remain very well placed for the race. Big potential here, and largely underappreciated by the punters.

Pengana International Equities (ASX: PIA)

• Starting Handicap: 12% discount
• Form Guide: We mentioned last year how this was a trainer under pressure, and this has led to a last-minute kerfuffle. Three members of the trainers board were dumped, with four new directors appointed. It's early days, but we would expect a change in training methods, and in time, either a new trainer or this horse will be retired by next year.

Thorney Opportunities (ASX: TOP) and Thorney Technologies (ASX: TEK)

• Starting Handicap: 35-50% discount
• Form Guide: These two horses may share the same jockey and trainer, but while TOP has put in a fair showing, TEK appears to be stuck behind the barriers. Stewards have afforded both a very generous handicap, but regardless, punters are very cold towards them.

PM Capital Global Opportunities (ASX: PGF)

• Starting Handicap: 5% premium
• Form Guide: One of the fastest horses coming into the big race, the recent races for this international runner has been extremely impressive. The jockey has read the track conditions perfectly, and there is no reason to believe they will slow down anytime soon. Heavily backed and carrying a big weight.

Ryder Capital (ASX: RYD)

• Starting Handicap: 20% discount
• Form Guide: Even after a mighty run last year, the stewards have increased the handicap to a 20% discount. We don’t believe for a second this horse has lost any speed, and with another helpful handicap, we are backing this one to run hard all the way to the finish line again.

Touch Ventures (ASX: TVL)

• Starting Handicap: 50% discount
• Form Guide: A relatively unknown trainer took charge and bought a big stake in the horse a year or two ago. Training methods are secret and results are not apparent as of yet, but could come from well back to win with the right draw and favourable conditions. One to put on the radar.

Mirrabooka Investments (ASX: MIR)

• Starting Handicap: 5% discount
• Form Guide: Stablemate to the giant AFI, MIR uses the same training methods but on smaller tracks. Excellent bloodlines and good racing record, but is coming off a rough year. This is a good handicap for this runner, so could well put in a strong showing.

Sandon Capital (ASX: SNC) 

• Starting Handicap: 10% discount
• Form Guide: Has performed well the last couple of years, and punters have recognised the talent. Quite well backed and expected to finish in the top half of the field. Could well be a top 3 finisher if the race goes its way.

Metrics Real Estate (ASX: MRE)

• Starting Handicap: 15% discount
• Form Guide: This is a young horse from the well-regarded Metrics stable. Training methods for this one are quite different to other stablemates and we’re yet to see whether it pays off. Odds are attractive as the punters have gone shy on it. In with a chance, but hard to back with confidence.

Staude Capital Global Value (ASX: GVF)

• Starting Handicap: Par
• Form Guide: Another one of those horses that always runs well. Has one of the highest average finishing positions of any horse, but never quite has the top speed to go with the fancier runners at the end. Great temperament and is always enthusiastically backed by a loyal fan base.

Who would fill the top 3 places?

Like the Melbourne Cup, the field is wide open, and we should always expect the unexpected. But we realise everybody loves a hot tip, so here are our picks. We’ve gone with a blend of three relatively different contenders this year to provide a balanced trifecta.

Salter Brothers Emerging Companies (ASX: SB2)

This was one of our picks last year. As mentioned earlier, things went well for the first half of the year before softening. It remains one of our top picks.

SB2's investment strategy is to own 25-30 listed and unlisted securities with market capitalisations under $500 million at the time of the initial investment. We believe that, at current pricing, there is significantly more potential in the smaller end of the market.

In addition to investing in smaller companies, SB2 is one of the smaller LICs. It has a market capitalisation of approximately $62 million and net assets of approximately $90 million. SB2 trades at more than a 30% discount to NTA. It has paid its first two dividends in the past 12 months; however, this has not yet translated into an improved discount.

The largest shareholder is WAM Strategic Value (ASX: WAR). WAR is Wilson Asset Management’s discount capture strategy, and at their last update, they held 18.2% of SB2. WAR has been accumulating SB2 quite rapidly over the past few months, and we would guess this will continue until they reach 19.9%. 

 Wilson Asset Management aren’t known for passively holding small LICs. There is a possibility that at some point, WAR will seek to either wind up SB2 or merge it with one of the Wilson Asset Management LICs, which is a very well-established path.

Even without WAR taking some type of corporate action, we believe there is upside in the underlying portfolio. SB2 management are very bullish on the outlook for both the unlisted and listed portfolios, and strong performance often leads to a tightening in the discount. 

Bailador Technology Investments (ASX: BTI)

BTI listed on the ASX in November 2014 and is a specialist investor in the information technology sector. BTI was founded by David Kirk and Paul Wilson. David captained the All Blacks to win the 1987 Rugby World Cup, was awarded an MBE in 1988, is a Rhodes Scholar, has a degree in Medicine as well as a degree in Philosophy, Politics and Economics from Oxford University. Paul has extensive private equity investment experience with a number of global firms, as well as being a Director of Rajasthan Royals (IPL cricket).

BTI owns a portfolio of listed and unlisted tech companies. Their two listed positions are as a result of successfully listing previously unlisted holdings. Their largest holding is the listed Siteminder (ASX: SDR), a hotel management software company. SDR accounts for 25% of BTI’s portfolio, even though BTI has realised cash multiple times on this investment over the years. BTI reports that their overall investment portfolio demonstrates revenue growth of 47%, gross margins of 65% and recurring revenue is at 87%. We are also comforted by the valuation policies of BTI, with the average uplift on private investments at the point of realisation being 39%. Portfolio returns have been solid over the last 5 years at a reported 11.2%.

Regardless of the successful portfolio results, BTI trades at a near 40% discount to NTA. In the more than 10 years since listing BTI has traded between a 47% discount (during covid) and at a premium to NTA on a couple of occasions, with an average discount of 23%. We believe the current near 40% discount is excessive for a proven manager. At this price you can write off Siteminder to zero, and still get the remaining unlisted portfolio for a 15% discount. We believe there is plenty of upside in BTI.

Australian Foundation Investment Co (ASX: AFI)

We’ve surprised even ourselves with our third pick this year. We’ve gone for balance in the trifecta. With our other two picks specialising in small caps and growth private equity, AFI provides a large-cap ASX exposure to round out the portfolio.

With the AFI discount near historical highs and fees and costs right at the lower end of the LIC sector, this LIC could provide an attractive alternative to a passive ASX200 ETF, particularly if we see a market correction, when the discount has tended to narrow and even turn into a premium, cushioning market falls.

We’re the first to admit the performance in recent years hasn’t been great from AFI. But performance tends to some degree to be cyclical and there’s a reasonable chance this could turn around in the future. An ASX200 exposure at around a 10% discount may not go too bad from here, and when combined with our other two picks, provides a reasonably diversified equities exposure.

Before you invest, read this!

We encourage you to do your own research before investing in any LIC. Remember, a great LIC and a great manager are only part of the story. We also like to make sure they are trading at the right price and that the assets they are investing in are not themselves overvalued. We explain how we do this in our LIC Guide, but in the end it’s up to you to make the investment decision that’s right for you, in conjunction with your financial advisor if you have one.

If you’d like to know more about Affluence and our funds that bring together some of the best investment managers in Australia, visit our website.

Take care and all the best with your investing.