AFI - Australian Foundation Investment Company

Why are LICs on average continuing to trade at large discounts to NTA? And related to that: why aren’t investors stepping up to buy these discounts, with the prospect of paying 90 cents, 80 cents, or even 70 cents for every dollar of assets?

Ophir’s Andrew Mitchell and Steven Ng did a great article examining this last year.

They went through several of the reasons given by investors for LIC/LIT premiums and discounts, including:

1. Supply and demand
2. Size of the LIC or LIT
3. Liquidity of the fund
4. Investor sentiment
5. Market direction
6. Investment performance

They suggested that none of these factors explained AFIC’s widening discount to NTA at that time (and it’s widened further since).

They theorized that another factor was far more important: interest rates. In AFICs case, lower interest rates have been associated with higher premiums to NTA and higher interest rates have been associated with higher discounts to NTA.



And what was true for AFIC was also true for other LICs.

I reckon the majority of it is because they have been underperforming the benchmark for a long time now. Why invest in them when I can buy an etf that tracks that benchmark with lower fees most likely.
I have seen some lic change to more frequent payment of divs, this also could be what some people are looking at.

while not specifically related to AFIC ( which i don't hold )

i use returns ( and probable future returns ) v. investment cash in preference to NTA as a guide in which LICs ( i hold several of them ) i buy

i also use the LIC ( fund-manager's ) expertise to invest in places where my skills are less capable , or they can access niche markets that i can't efficiently

i wonder if ( generic ) LIC bashers have other agendas ( say a windfall to converting them to 'actively-managed ETFs ' )

LICs DO have their place in the investment landscape

( PS i do NOT mind paying high fees as long as actually performs/over-performs most years )


maybe some more focus could be on fees vs. performance .. after all, NTA valuations is more about the market strength ( share prices ) generally ( ideally your active LIC should handle the market downturns more effectively )

actually, i sold some of afi for arg due to the performance difference.
i was expecting similar trend but no, well below.