If 24 LICs ran the Melbourne Cup, which would be our favourites?

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, a listed investment company (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. We do this analysis every day, but it’s that special first Tuesday of November where we publish our form guide for all to see.

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

There is no doubt about it, the last 12 months has been a trying time for the LIC and LIT market. There have been fewer capital raisings this year for new and existing vehicles, compared to the last few years. Those that have raised capital are either catering to investors looking for monthly income or from managers with an exceptional track record. Discounts to NAV have generally increased as active ETFs have exploded in popularity and appear to be sucking demand away from the LIC sector.

However, we continue to believe that LICs and LITs have an important role to play. Not all sectors and strategies can be catered for by ETFs, and many LICs and LITs showcase differentiated strategies that can add value to investor portfolios.

There are decidedly mixed track conditions coming into this year's race. The ASX200 Index has been running pretty dead, with a 3% total return for the year ending 30 September. The ASX Small Ords has made life tough for investors. Very heavy conditions have delivered returns of -7% to 30 September. October has been even worse, with the index now down almost 20% from its highs. 

The cult of passive investing continues to suck money out of all corners of the equity market except for the largest stocks, irrespective of valuations. This has definitely been a headwind for active stock pickers, especially for the smaller end of the market. However, from misfortune comes opportunity. As markets become less efficient, there are undoubtedly more mispriced investments on offer.

Last year's picks failed to fire

Our picks for the top three in 2025 were not as fast as previous years. In fact, if you judged us by last year alone, we’d probably get fired! Luckily, our long-term track record is much better. Let’s review what happened with our choices:

Salter Brothers Emerging Companies (ASX: SB2) was a pick in 2024 and 2025, and it has not raced to its potential in either year. For the year to 30 September 2026, SB2 returned -21% at the portfolio level and -11% for shareholders. It was a small comfort to shareholders that the discount to NAV reduced from -32% to -24% over this period.

Bailador Technology Investments (ASX: BTI) was caught out by two negative forces. First was the SaaSpocalypse, which is a market fear describing how AI-driven software creation could disrupt traditional Software-as-a-Service (SaaS) business models. This caused a significant sell off in technology companies. The second theme was a general distrust in private market valuations (both private equity and private credit). For the past 12 months, BTI returned -13% at the portfolio level, but -24% for shareholders, as the discount increased from 38% to 47%.

Australian Foundation Investment Company (ASX: AFI) underperformed at a portfolio level (0% vs 3% for the ASX200 Index). The discount to NAV increased from -12% to -15%, resulting in a total shareholder return of -3% for the year. Not a disaster, but the recovery back to par for the big old LICs has not yet occurred.

Who would make the cut in 2026?

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: It’s been a wild 12 months for this horse, with US based private trainers. At one point earlier in the year it was literally on its way to the moon. However, the space dust has worn off and the stewards decided to maintain an attractive discount. Anything is possible with this one and could be an outside chance.

Tribeca Global Natural Resources (ASX: TGF)

• Starting handicap: 15% discount
• Form Guide: Has been racing well coming into the race, however it can be a tricky horse to ride. Trainer specialises in training on rocks somewhere out in the Pilbara, which can result in the occasional tumble. Very flighty, so speed can be extreme in either direction.

Gryphon Capital Income Trust (ASX: GCI)

• Starting handicap: Par
• Form Guide: If there was a race for consistent performance, this horse would have it in the bag. Not a flashy racer but definitely a stayer. Unlikely to have the outright speed to win, but can almost guarantee it won’t be near the back either.

Ophir High Conviction (ASX: OPH)

• Starting handicap: 15% discount
• Form Guide: In previous editions of the race this horse would have been expected to be right near the front. It’s been a rough couple of years (or five) for OPH. Hard to know what has gone wrong, but we do have high regard for the jockey and trainer and we do believe they can regain the previous speed. Handicap has adjusted to recent performance, so this will only help their chances.

WAM Alternatives (ASX: WMA)

• Starting handicap: 20% discount
• Form Guide: No strong victories but no disasters either, is probably the best way to describe this plodder. The trainer has tried hard to elicit some speed out of WMA, but it refuses to get out of a trot. We do believe there are better days ahead and better performance will lead to a narrowing of the discount, but the timing is hard to pick.

Salter Brothers Emerging Companies (ASX: SB2)

• Starting handicap: 25% discount
• Form Guide: The trainer focuses their efforts towards the smaller end of the market which has been tough. Largest owner is unrelated to the trainer and continues to mop up disgruntled sellers. Performance has been dire, but opportunity may come from the major owner being forced to take action.

Hearts & Minds Investments (ASX: HM1)

• Starting handicap: 15% discount
• Form Guide: Its hard to know who the real jockey is of this horse, but there are plenty of famous riders and trainers offering their services. It races to win but not for the prize money, a very impressive act of kindness from all of the trainers. Recent form has been a little inconsistent.

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

• Starting handicap: 50% discount
• Form Guide: These three stablemates continue to be shunned by punters. The training strategy is very clear that there will be a gradual return of capital to the owners as investments are sold. Not sure how the stewards come up with these handicaps, but we are happy to indulge them.

Metrics Master Income Trust (ASX: MXT)

• Starting handicap: 15% discount
• Form Guide: Coming into the big race after pulling up lame, with a period of spelling after the vet pulled this horse from racing. The past few months have knocked punters confidence in this stayer. Even after the recent tumble, performance since inception 9 years ago has been well in excess of target. We continue to back the jockey and trainer. Given the very attractive starting discount, we expect a very strong result.

L1 Long Short Fund (ASX: LSF)

• Starting handicap: 5% premium
• Form Guide: This horse has been on a hot streak, with blinding speed and excellent staying abilities. The two jockeys have been busy expanding their stable, however this has not affected performance. It’s a tough handicap to carry, but if they continue at current pace they are in with a great chance.

Australian Foundation Investment Co (ASX: AFI)

• Starting handicap: 15% discount
• Form Guide: Largest horse in the field and has been subject to an unusually large amount of change for a horse with such a stable past. The trainers have appointed new jockeys to take the reins, in addition to dividends moving to quarterly. Has underperformed recently but an attractive 15% discount plus quarterly dividends may give it a chance, particularly on a wet track.

Regal Asian Investments (ASX: RG8)

• Starting handicap: 15% discount
• Form Guide: Has been racing well on tracks such as the famous Happy Valley Racecourse but has had a few stumbles in the last month. Famous and talented jockey has announced his retirement but has allowed plenty of time to hand over the reins to the next generation. No doubt this horse has the speed to win, but picking the timing can be tricky.

WAM Capital (ASX: WAM)

• Starting handicap: 10% discount
• Form Guide: WAM is an example of what can go wrong when backing a heavy favourite. For most of the last 10 years WAM has traded at a large premium to its NAV. As recently as July it was at a 30% premium. The trainer had flagged for quite a while that the high dividends were unlikely to continue, but when the dividend cut was announced the punters were incensed, and the share price has fallen almost 30% in the last two months. This has resulted in a much more reasonable starting weight, however recent pace has been underwhelming.

Bailador Technology (ASX: BTI)

• Starting handicap: 45% discount
• Form Guide: The trainers and jockeys have continued to do an impressive job with this runner under trying conditions. Extremely attractive handicap and largely underappreciated by the punters. Strong chance.

Pengana International Equities (ASX: PIA)

• Starting handicap: 5% discount
• Form Guide: There have been dramas in the PIA stable for the past 12 months, however a new slimmed down runner has emerged. In September, PIA redeemed 59% of outstanding shares and returned the proceeds to investors. Horse has always looked outclassed in the big league, but a new trainer and jockey have been appointed by the owners and time will tell whether they can deliver.

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

• Starting handicap: 40-50% discount
• Form Guide: These two horses share the same jockey and trainer. While TOP has put in a fair showing, TEK appears to be running the track backwards. Punters have become even more cool towards these two horses, with the share price almost completely dislocated from changes in the NAV. A lot would have to go right for these two to have a chance.

PM Capital Global Opportunities (ASX: PGF)

• Starting handicap: 10% premium
• Form Guide: Short races, long races, it doesn’t seem to matter to this horse, it has been winning over all distances. It’s rare for one horse to just keep performing so strongly, but it has. Australian jockey and trainer but runs on the international circuit, the handicap is tough but appropriate. Don’t count this one out.

Ryder Capital (ASX: RYD)

• Starting handicap: Par
• Form Guide: One of the fastest runners over the past few years. After delivering 3-year performance of over 30% per annum, the stewards have finally hit RYD with a big handicap. Very strong horse, but the handicap may slow it down.

ECP Emerging Growth (ASX: ECP), Flagship Investments (ASX: FSI) and Global Masters Fund (ASX: GFL)

• Starting handicap: 20-30% discount
• Form Guide: Trio of runners from one of the smaller stables have had a particularly tough period over the past few years. The training style has just not worked in recent track conditions, in addition to some self-inflicted tumbles. There may be a turnaround in performance at some point, but picking when that happens is impossible.

Rivco Limited (ASX: RIV) 

• Starting handicap: 30% discount
• Form Guide: A specialist trainer that is well known for using swimming as the dominant training method. A change of dividend policy has seen the punters desert this horse, which has resulted in a much lighter race weight. Will definitely be hoping for a wet track.

Metrics Real Estate (ASX: MRE)

• Starting handicap: 35% discount
• Form Guide: This is a young horse from the Metrics stable. Similar to its much larger stablemates MXT and MOT, MRE has had a rough few months. Appears to be currently running on three legs, but don’t count it out yet. If the track gets really rough there is a chance it won’t finish, but its a long race and the longer it goes the more likely we see a strong recovery ride.

Benjamin Hornigold (ASX: BHD)

• Starting handicap: 30% discount
• Form Guide: This pirate themed LIC has been under new management for a few years following a disastrous debut race. Form coming in has been excellent, and the current part time trainers deserve significant credit. But this horse is getting on in years and is expected to be retired sooner rather than later.

L1 Global Long Short (ASX: GLS)

• Starting handicap: 10% premium
• Form Guide: After disappointing for several years, L1 took over the reins for this horse two years ago. Form since then has been phenomenal and this big horse is in with a real chance.

Kapstream Investment Trust (ASX: KIT)

• Starting handicap: 20% discount
• Form Guide: New entrant this year for this stayer, and also a rookie trainer and jockeys. Dragged to the start line and the punters are barely aware it exists. Stewards must also be unaware of it because they have allocated an exceptionally generous handicap. Likely to have a very strong debut but probably not enough for the win.

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.

Metrics Master Income Trust (ASX: MXT)

We know this is a controversial call. It has been a difficult few months for the three Metrics LITs (MXT, MOT and MRE), with late audited accounts leading to trading being suspended, an unexpected 2% valuation writedown for MXT (and larger writedowns for the other two), and a deteriorating macroeconomic background. Media coverage has understandably not been flattering.

There has recently been increased scrutiny on private credit, especially real estate lending, due to falling residential values, ASIC's increased focus on the sector and some well-publicised failures such as Bathla Group and Public Hospitality.

The negative attention and investor sentiment has pushed MXT to a large discount to NAV. This is where the opportunity comes from. The combination of these sector and specific factors sees MXT trading at a price of $1.62, which reflects a discount to NAV of 17%.

The MXT portfolio is extremely diversified, with around 350 individual loans. The largest single loan exposure is 2.5% of the total portfolio. Historically MXT has delivered returns in excess of the RBA cash rate plus 4%, almost all of which has been paid as monthly distributions. We expect the MXT portfolio can continue to deliver this level of returns going forward on the current NAV of $1.96. Based on the current cash rate of 4.65%, that is equivalent to a return of over 10% on the share price of $1.62.

The question then becomes whether we will see further write downs in the NAV. There may be, but we believe any further write downs are very unlikely to exceed the current discount. If the market agrees, at some point we will likely see the discount close, and the share price rise, adding to investor returns.

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

These three LITs were set up to invest in US middle market private equity. The current responsible entity is K2 Asset Management. The investment manager is Cordish Equity Partners, a US based manager with extensive experience in allocating to private equity funds. The three funds were listed separately with inception dates of August 2012, April 2013 and July 2016 respectively. They were originally set up by Dixon advisory, which became part of Evans & Partners. When Evans & Partners encountered issues with their financial advice business and the listed US Masters Residential REIT (URF), related investments including CD1/2/3 were also sold off aggressively by investors.

Current manager K2 has been very clear that the strategy is unchanged - as underlying private equity investments are realised, the proceeds are distributed to unitholders. This will continue until all capital has been returned. K2 and Cordish have sold some investments at discount before the underlying assets are realised, to accelerate the return of capital. We would expect that the earlier vehicles will have their capital returned earlier than the later ones, however this is not guaranteed.

Recent underlying performance has been poor. This is more than compensated for by the discounts to NAV being around 50%. With the vehicles actively harvesting cash to return to unitholders, we only need actual results to be less worse than expected results to make strong returns.

Regal Asian Investments (ASX: RG8)

RG8 has been performing strongly until very recently and the discount has stabilised in the 10-15% range. The LIC employs a long-short strategy that invests in Asian and Australian equities, managed by CIO of Regal, Phil King. Phil has announced his retirement plans from the Regal business by no earlier than June 2027. We are comfortable that the length of the transition will allow for a successful handover of responsibilities. Regal has always run a multi-portfolio manager approach, and we are confident the Regal DNA runs deep in the investment team.

October has been a tougher month for RG8, which is where the opportunity has come from. The portfolio long investment themes include Asian memory stocks, gold equities, and other resource stocks. RG8 has also been short Australian banks on valuation and earnings concerns. These factors resulted in the NAV falling from $3.00 at 30 September to $2.39 as at 30 October. This is a fall of 20% during the month, and the share price has fallen approximately 20% as well.

In the past, Regal investment vehicles have recovered strongly from large downturns in many cases. This may well be another similar opportunity.

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.