Listed investment companies (LICs) and listed investment trusts (LITs) are like managed funds and exchange-traded funds (ETFs) in that your money is pooled with other investors in a professionally managed portfolio of assets.
All allow individual investors to achieve greater diversification than they could on their own. They are also an effective way to plug holes in your investment portfolio through exposure to asset classes and market sectors you might otherwise find difficult to access.
As the name suggests, LICs use a company structure while LITs are trusts that generally take the form of an Australian Managed Investment Scheme (MIS).
A venerable history
LICs are the grandaddies of the Australian listed managed investment scene.
The two biggest LICs, Australian Foundation Investment Company (AFIC) and Argo Investments, have been around since 1928 and 1946 respectively. Both are long-term investors in Australian shares with a buy and hold philosophy which keeps costs low.
Like ETFs, LICs and LITs are listed on the Australian Securities Exchange (ASX) and can be bought and sold as easily as ordinary shares.
Unlike ETFs, which are mostly passive, index funds, LICs and LITs are actively managed by the fund manager who picks the underlying investments. This means they tend to be slightly more expensive than index ETFs.
According to the latest ASX statistics, there were 89 LICs and LITs listed on the ASX in August 2023 with a total market value of $1.44 billion. While still significant, their number and value has been declining in recent years, perhaps due in part to the increasing popularity of ETFs which now number over 300.
A key difference between LICs and ETFs is that LICs are closed-ended investments with a fixed number of shares on issue. This provides stability as shares can only be traded between willing buyers and sellers.
This structure also means LICs tend to trade at a premium or discount to their net tangible assets (NTA), depending on their current share price. According to ASX statistics, in July 2023 all but seven LICs were trading at a discount to NTA.
On the other hand, ETFs are open-ended, which means units in the fund can be created or redeemed according to investor demand without the share price being affected. As a result, ETFs always trade close to their NTA.
SMSF investors have long been big supporters of LICs because they offer a simple, easy to trade, low-cost way to diversify. While newer LICs and LITs offer access to global shares, fixed interest and property, roughly two thirds of products offer Australian shares.
This is reflected in the fact that the two most popular LICs with SMSF investors are the long-standing Australian share investors, Australian Foundation Investment Company and Argo.
According to Class, these two funds are held by 19.4% and 15.3% of SMSFs that hold LICs/LITs. Between them, they account for 22.8% of the total value of SMSF LIC/LIT investments.
Also popular is Wilson Asset Management (WAM) which has three funds in the top 10: WAM Capital, WAM Leaders (Australian shares) and WAM Global (international shares).
As interest rates rise, SMSFs are also using LICs/LITs for alternative sources of income. Coming in at number three is the MCP Master Income Trust, which offers exposure to the Australian corporate loans market.
Fourth on the list, the L1 Long Short Fund is an absolute return fund that invests in Australian and global shares and derivatives. Absolute return funds aim to provide a positive return to investors in all market conditions.
20 most popular LICs/LITs invested in by SMSFs*
The top 20 list below is ranked by the percentage of SMSFs holding these LICs/LITs, rather than the percentage each security makes up of total SMSF investments in LICs/LITs, although both figures are provided in the table.
| Rank | Security code | LIC/LIT name | % of funds with LICs/LITs that hold this security | % of total SMSF LIC/LIT investments** |
|---|---|---|---|---|
| 1 | AFI | Australian Foundation Investment Company | 19.4% | 12.4% |
| 2 | ARG | Argo Investments | 15.3% | 10.4% |
| 3 | MXT | MCP Master Income Trust | 14.3% | 5.9% |
| 4 | WAM | WAM Capital | 11.6% | 4.0% |
| 5 | LSF | L1 Long Short Fund | 8.0% | 4.1% |
| 6 | WLE | WAM Leaders | 8.0% | 4.6% |
| 7 | MFF | MFF Capital Investments | 6.5% | 3.9% |
| 8 | WGB | WAM Global | 6.1% | 1.8% |
| 9 | NBI | NB Global Corporate Income Trust | 5.9% | 1.7% |
| 10 | PL8 | Plato Income Maximiser | 5.2% | 2.9% |
| 11 | MOT | MCP Income Opportunities Trust | 5.1% | 1.7% |
| 12 | KKC | KKR Credit Income Fund | 4.9% | 1.5% |
| 13 | PCI | Perpetual Credit Income Trust | 4.4% | 1.3% |
| 14 | PGF | PM Capital Global Opportunities Fund | 4.3% | 2.7% |
| 15 | VGI | VGI Partners Global Investments | 4.2% | 1.3% |
| 16 | BKI | BKI Investment Company | 4.2% | 2.7% |
| 17 | DJW | Djerriwarrh Investments | 4.2% | 1.5% |
| 18 | PIC | Perpetual Investment Company | 4.1% | 1.6% |
| 19 | HM1 | Hearts and Minds Investments | 3.9% | 1.3% |
| 20 | QRI | Qualitas Real Estate Income Fund | 3.9% | 1.4% |
Source: Class. Data as of 30 June 2023
*Data sourced from 186,220 SMSFs that use Class software.
**Percentage each security makes up of the total SMSF LIC/LIT investments e.g. Australian Foundation Investment Company accounts for 12.4% of the total SMSF investments in LICs/LITs.
It’s worth noting that the 20 most popular LICs/LITs represent 69.5% of total SMSF LIC/LIT investments, indicating the relatively shallow market for these investments compared with managed funds and ETFs.
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