Listed Investment Companies can still deliver for investors

In recent years, Listed Investment Companies and Trusts (LICs) have polarised the investment community. Some investors have been turned off by increasing discounts in certain sectors of the LIC universe. Others remain attracted, especially to the newer breed of LICs, which have structural enhancements that seek to improve the overall investor experience.

There are over 80 LICs listed on ASX, with a market value of more than $50 billion. After several difficult years between 2018 and 2022, the sector has more recently been growing again, and new offers are regularly coming to market. We believe that LICs can perform an important role in investor portfolios, delivering both income and capital growth for patient investors.

Below we’ve outlined many of the features that can make LICs attractive for an income biased investor. If you’re new to LICs, or haven’t used them for a while, now might be a great time to take a look.

Discounts are above average 

One of the main gripes with the LIC structure has always been their susceptibility to trading below their underlying net asset value (NAV). And it’s a fair point. Managed funds and ETFs are always priced at NAV, adjusted only for a small buy/sell spread. LICs, however, can trade above the value of their assets (at a premium) or below the value (a discount). Therefore, when buying any LIC, there is always the risk that it could go from trading at a premium to a discount, or that the discount could get bigger. This can negatively impact performance, irrespective of the returns the manager delivers.

But the opposite is also true. Discounts can get smaller, which positively impacts performance. It’s an extra way to potentially add value over and above the returns generated by the LIC itself if you buy well.

There are a lot of factors that impact discounts and premiums. But a great starting point is to consider the current discount or premium vs the long term average. An above average discount can be an indicator of an attractive entry point.

As one example, we’ve recently been a buyer of AFIC (ASX: AFI) in our LIC portfolio. Here’s a graph of the average premium/discount for AFIC for the last 10 years.

Over this period, AFIC has traded around net asset value on average. But there have been three distinct patterns during that time:

• From 2016 to early 2020, AFIC generally traded close to net asset value.
• For much of 2020 – 2022, it traded at a premium. The AFIC share price was in most cases at least 5-10% higher than the value of its assets. You would have been paying extra during this period for the privilege of investing in this LIC, which is usually not a good idea in our view.
• From 2024 until now, AFIC has mostly traded at a discount of 5% or more. At the end of February 2026, that discount was 14%, about the highest it has been in the last 10 years. Net assets were $8.09 per share. The share price was $6.95. On those metrics, buying AFIC now may be a more attractive proposition than, say, an ASX200 ETF.

AFIC is not alone. Many other LICs right now are trading at very attractive discounts relative to their net asset value.

Dividends have been enhanced.

Many LICs have generated good returns from their portfolios over the past few years. They have used this period to enhance dividend reserves and franking credit balances. As a result, those LICs now have several years of dividend coverage, meaning payments could still be maintained through a market correction or period of underperformance.

In addition, many LICs have grown dividends, and/or moved to more regular dividend payments. Most LICs now pay more consistent and higher dividends than equivalent ETFs. It is now quite common for LICs to pay quarterly or even monthly. This more regular dividend cycle has helped these LICs to trade closer to net asset value, which in turn reduces volatility (ups and downs) in the share price.

Fixed income LICs can pay higher cash distributions

Over the past five years, we have seen an explosion in fixed income focused listed investment trusts. These have now become a staple of the ASX, promising reliable income, portfolio diversification through fixed income, and access to high-quality specialist investment teams. The vehicles have attracted substantial interest - particularly from retail investors and their advisors. Despite the recent negative publicity around private credit, this sector of the LIC market has largely delivered, with attractive, regular income and reasonably stable net asset values. Many, such as Gryphon Capital Income Trust (ASX: GCI) and Qualitas Real Estate Income (ASX: QRI) have traded quite close to their underlying net asset value most of the time.

Unlike most LICs, these vehicles are technically trusts. Thus, they pay higher cash distributions (not dividends), but don’t come with franking credits.

Last year we took a deeper look at this sector, and our conclusions remain valid. These LICs have largely delivered on their promises.

Funds

Have ASX-listed debt LITs delivered on their promises?

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Equity income LICs

A few LICs focus on delivering above average income from an equity based portfolio. Examples include WAM Income Maximiser (ASX: WMX), which invests in a mix of debt and equities, and Plato Income Maximiser (ASX: PL8), an equity income specialist. Though both currently trade at reasonable premiums to their net asset value, making them expensive in our view, they have certainly proven extremely popular with investors since listing.

Accessing quality managers through LICs

In many cases, LICs can provide the only means for a retail investor to access specific investment managers or strategies. LICs such as Ryder Capital (ASX: RYD), do not offer ETFs or unlisted retail funds, and so their LIC is the only option to access the Ryder Capital investment expertise.

Other managers, such as L1 Capital, have chosen to offer specific strategies only through an LIC, such as their recently recapitalised L1 Global Long Short Fund (ASX: GLS).

Through these and many other LICs, you can access specific managers and strategies with very good long-term performance.

Alternative assets and investment strategies

Many of the investment strategies employed by LICs are differentiated and can help diversify portfolios.

In addition, quite a few LICs offer access to less liquid asset classes, such as private equity. Several LICs, including Bailador Technology Investments (ASX: BTI) and Pengana Private Equity (ASX:PE1) provide access to a range of private equity investments. WAM Alternative Assets (ASX:WMA) invests in a range of unlisted assets including private equity, private credit and agriculture.

While these asset classes are also available via unlisted funds, they do usually come with significant liquidity constraints, meaning you may need to invest for a significant period before you can expect your investment funds to be returned to you.

LICs solve this liquidity problem, though as we’ve already established, the share price can be different to the net asset value. So, the risk is you may not like the price offer when you wish to sell.

Improved governance and investor friendly enhancements

Over the past few years, many LICs have introduced initiatives to improve governance and/or keep the LICs trading closer to net asset value.

As one example, many of the recently listed debt LICs feature quarterly buybacks at net asset value. While capped, these structures seek to ensure investors have an option to redeem at least part of their capital at net asset value on a regular basis. This has tended to have a positive impact on share prices. We welcome these structures, and it’s an initiative that many of the equity focused LICs could take on board.

Other examples of improved governance include increased appointment of independent directors and use of external responsible entities. This separation of decision making between Boards and underlying investment managers should be standard for all LICs, in our view.

We’ve also seen improvements in investor relations for many LICs, such as more regular and detailed reporting and online investor webinars or in person investor meetings. Many LICs have also introduced or enhanced internal resources. This can enable investors to talk directly with a knowledgeable representative of the LIC manager, rather than having to deal with registries, who have little direct understanding of the LICs investment activities.

Our Verdict: There’s a lot to like about LICs

As we’ve demonstrated, there’s a wide range of options available in the LIC sector. Most managers are very capable, and many strategies are differentiated, providing opportunities to diversify investment portfolios.

Manager reporting and investor relations is generally rather good. Governance and investor friendly features are improving over time.

But all that doesn’t stop the odd market tantrum or other event from hurting the share prices, either temporarily or for longer periods. Investors need to factor in these potential price falls, and the psychological impact it might have on them. For those who understand the structure - and are prepared for occasional price dislocations - LICs can be a valuable portfolio tool. But they’re not "set and forget". Regular monitoring of investment performance, discount levels and manager updates is important.

Before you invest, read this!

We encourage you to do your own research or consult your financial advisor before making any investment. Remember, a great LIC and a great manager is 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.

Take care and all the best with your investing.