Demand for LICs and LITs holds steady

Angus Gluskie

The Listed Investment Company (LIC) and Listed Investment Trust (LIT) sector has been growing steadily in Australia for the past 95 years – and has performed well during COVID-19.

The sector’s market capitalisation dropped just 2% to $44 billion over 2019-20, according to the Listed Investment Company and Trust Association (LICAT).

This compares to a 10.9% drop in the market capitalisation of the S&P/ASX200 while the capital value listed on ASX slipped 7.3% to $1.9 trillion.

Angus Gluskie, Chairman of LICAT, said: “There are over 700,000 investors holding one or more LICs and/or LITs today.”

He noted since March 2020, during the height of the COVID-19 pandemic, the LIC and LIT market cap had risen 9.1%. or over $3.7 billion.

“Over the latter part of the 2019-20 financial year, LIC and LIT managers have been presented with some of the most challenging times in living memory following the fallout from a global health emergency and a turbulent time on financial markets,” he said.

“However, it is pleasing to see that demand for LICs and LITs remains steady, and to see LIC & LIT managers capably navigating this environment.”

Geoff Driver, General Manager Business Development and Investor Relations at $7 billion LIC Australian Foundation Investment Company (AFIC) noted that “during the period, AFIC continued to adjust the portfolio and took advantage of the decline in share prices to increase holdings in companies in which it wanted to own more. This included participation in the recent deeply discounted capital raisings that have occurred.

“Drawing upon reserves, the final dividend was maintained despite the fall in income. We think this speaks to the strength of the LIC structure in more difficult times, particularly for AFIC which has a long history’ Mr Driver said.

Commenting on the continuing growth in the fixed income category, up 44.1% over the year, Qualitas Global Head of Strategy Kathleen Yeung, said the LIT structure had continued to provide an important source of capital stability for investors. The Qualitas Real Estate Income Fund (QRI) continued to provide a regular source of monthly income, while preserving investors’ capital. QRI does not have any loan impairments in its portfolio (which it reviews on a monthly basis) and there has not been any loan impairment since inception of the fund. The fund manager knows all of their borrowers individually,” she said.

Hayden Nicholson, LIC Specialist at broker Bell Potter Securities noted that “while the transition from 2019-20 has been turbulent for LIC and LITs, Australian equities have also faced the same set of circumstances. We see this as a unique opportunity for fund managers, as many LICs/LITs begin to rebalance their portfolios and acquire financially strong securities at a lower investment cost.”Overall, Mr Gluskie said the LIC and LIT sectors had weathered the recent difficult times well.

“The sector contains some of the largest and most cost-efficient actively managed investment entities that can be accessed by retail investors in Australia.

“It also offers investors access to trusted investment entities that have been prudently and conservatively managed over many decades and over many different (and at times difficult) investment climates.”

Mr Gluskie said closed-end funds provided unique advantages to investors, the broader economy and the financial markets system. “LICs and LITs have been assisting investors in growing their wealth for nearly 100 years.

“The efficiency and stability of their closed-end structure coupled with the corporate governance disciplines of ASX listing have proven to be far more durable than many other investment structures.”