LIC Outlook for 2018 – Nathan Umapathy

The Listed Investment Company (LIC) sector has been one of the great success stories of the Australian Securities Exchange (ASX) in recent years. LICs have been trading on the ASX for nearly 100 years, but it is only of late that a broader range of investors have capitalised on the opportunities offered by the sector. 

LICs are professionally managed portfolios that offer diversification and access to quality fund managers, with emphasis on liquidity and transparency.

For 2018, we anticipate growth will occur away from large-capitalisation domestic equity products and into those areas that are well under-represented. Global equity focused products are likely to be a key beneficiary and an increase in both the size and style of offering is likely. We also expect growth in more index-unaware products and those that offer a high and sustainable income. It has been a strong period of growth for the LIC sector and we believe there are several drivers now in place that may see the LIC Sector continue to grow for the next five years and beyond.

Here are three different LICs to consider for 2018: 

MFF Capital (MFF)

MFF’s primary focus is to invest in large listed international companies assessed to have attractive business characteristics at a discount to their assessed intrinsic values. MFF has been able to consistently outperform its benchmark, the MSCI World Index, over the last 10 years by 6.9% p.a. MFF has traded at a discount historically because of an option overhang and its relatively low dividends. However, these options have now expired and management have announced an increase in their dividends. This represents a great opportunity to purchase a prominent global LIC at a discount to its NTA. 

Perpetual Equity Investment Company (PIC)

PIC offers investor’s access to Large to Medium Cap Australian companies along with a small portion in global listed securities. PIC has delivered strong investment performance, outperforming the ASX 300 Accumulation Index by 2.6% in the last 6 months. We believe there is potential for share price appreciation given the company has a strong profit reserve, sufficient franking credits and recently taken a more proactive approach in marketing the LIC. PIC has paid a 5.8% fully franked dividend yield in 2017. 

PM Capital Asia (PAF)

Asia has been a big component of the performance in Emerging Market sector in 2017. And we believe a great way to get exposure to Asia is via PM Capital Asia (ASX: PAF). PAF traditionally offers a diversified portfolio of 15-35 Asian listed equities (ex Japan), with the Manager focusing on key thematics like Gaming and the eCommerce industry. PAF has paid a grossed up yield of 5.7% over the last 12 months and we expect PAF to be able to continue to pay this yield going forward (subject to financial conditions). PAF represents exposure to Asia with a good yield.