As financial advisers, one of our most important roles is to filter through the vast amounts of investment information and attempt to make prudent recommendations for our clients. This role seemingly gets more difficult by the day. We have seen an explosion in the amount of content available from stock brokers, fund managers and investment advisers, not to mention the investment conferences and luncheons (yes there is such thing as a free lunch). Unfortunately, there hasn’t been a requisite explosion in the quality of the information made available to investors; hence why we believe the Unconventional Wisdom Journal can play a role in the financial markets in Australia. As part of the daily filtering through solicited and unsolicited investment emails, I’ve noticed an emerging trend in Australia; that is the huge growth in Listed Investment Companies, or LICs. It seems there is a new LIC, or something similar, being made available to investors on a weekly basis. A single google search confirmed my suspicions, with independent research house Morningstar indicating that the number of LICS had grown from 68 in 2014 to 98 today; that’s 58% in just three years. Whilst this growth is a long way off the adoption of exchange traded funds (which we covered in issue X) in recent years, we thought it warranted further analysis. In this article, we seek to provide some insight into how LICs differ from similar alternatives like Listed Investment Trusts (LIT’s) and managed funds, and why they have grown so strongly in the last few years. Finally, we identify a few LIC’s that we believe could fit well into an Australian equity focused SMSF portfolio. What is an LIC? An LIC is exactly as the name suggests; a listed investment company. An LIC is the same as BHP Billiton Ltd, it’s shares are listed on the ASX and can be bought and sold through any share trading account. The key difference between an LIC and BHP Billiton is that an LIC invests solely into shares in other companies, whereas BHP typically buys mines, exploration permits or property. An LIC does this by ‘employing’ a fund manager like Platinum or Magellan, to manage the underlying portfolio of assets. The structure of an LIC means that investors are issued or own shares which entitle them to a share of future profits of the company, in the form of dividends. As a company, all income and capital gains realised on the underlying investments are taxed at the company tax rate of 30% and the company receives franking credits in return. This is an important difference between LIC’s and LIT’s, with the latter operating under a unit or family trust-type structure, meaning that all income must distributed directly to shareholders at the end of each financial year. LIC’s and LIT’s have one important trait in common, that being both structures are closed end funds. This means that the LIC or LIT does not issue new shares or units in order to welcome new investors, like a managed or exchange trade fund would. Rather, the number of shares on issue are finite, as is the amount of capital invested, and shares must be obtained from another holder rather via an application form. What are the benefits of LICs? The closed end nature of an LIC…

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