NAOS’ top tips for investing in Listed Investment Companies (LICs)
1. Research: there are around 60 LICs listed with the ASX. Find out the investment strategy and philosophy of the LIC before investing and also look at the performance history of the fund manager to help establish if the investment presents a compelling investment opportunity.
2. Stay small: If your goal is to increase wealth, one strategy can be to look for a smaller, niche and agile fund that invests in stocks outside the top 300, adopts a long/short investment strategy (for return and hedging purposes) and which may invest in overseas markets as these types of funds will help expand your investment portfolio and may help the fund manager to provide positive absolute returns.
3. Cash is king: Look for LICs that have flexibility in terms of their cash holding. Managers who have the ability to manage their cash are generally better positioned to meet changing market conditions and source opportunities to help produce positive absolute returns for their investors.
4. Investigate dividends: Look at how the LIC pays dividends – whether it is per annum plus franking and at what rate. Compare this to other LICs.
5. Look at the net tangible asset price: Be prepared to evaluate where the share price of the Company sits versus the NTA per share and what opportunity this may/may not present.
