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The dramatic fall of the local stock market has created long-term investment opportunities for listed investment companies (LICs), according to Treasury Group chief executive officer Mark Burgess.
The fall in the share price of LICs has made them attractive investments, but when combined with stored franking credits, Burgess argues, it is time to revisit the sector.
“The difference between the NTA per share and the market share price has grown to 30 to 40 per cent discount,” he said.
Treasury Group’s Premium Investors LIC has a NTA per share of 83.4 cents (in March this year), compared to a share price of about 50 cents.
“We think there is going to be a demand for LICs again when investors look at the attractive payments in the future,” Burgess said.
“It will suit investors with self-managed superannuation funds who want exposure to growth assets that have a focus on capital protection as well.”
Treasury is making the premium fund more active with a blend of Australian and international investments.
He said the advantage of LICs was the investment was liquid, yet offered exposure to growth assets with some hedging for extra performance.
“But the other attraction for investors is the franking credits the LIC is building up because shares are not paying dividends at present,” Burgess said.
“The credits are accumulating, so when LICs starting paying dividends again, investors will enjoy the credits for a number of years.
“We do believe LICs are offering a free lunch at present.”
He admits the LIC story hasn’t been sold very well in the present crisis and few people realise the future opportunities the franking credits will generate.
“The blend of franking credits and the price discount is making LICs an attractive option for investors,” Burgess said.
LICs have not been popular investments after the poor returns of the initial LICs that were offered earlier in this decade.
He admitted some LICs do track the market, delivering an investment performance that would match an index fund.
But as the share price of LICs has fallen in line with the overall market, it has opened up the opportunity to buy at a discount, Burgess said.
