LIC bank exposure fears dismissed

Investor fears over the high exposure of Listed Investment Companies (LIC) to the banking sector have been dismissed as misguided by Aegis Equities Research in a new quarterly report on the sector released this week.

The September quarter edition of the Listed Managed Investments Review 2004 suggests investors have no reason for concern over the relative high levels of LIC exposure to the sector, despite the recent weak performance of some banks.

This is largely due to the Aegis review foreseeing no sign of any threat to bank dividends over the medium to long term, according to Aegis managed investments analyst Chris Turnell.

“The only time LICs would likely reduce weights out of banks is if they feel the dividend growth prospects aren’t there, but they’ve indicated to us they will maintain their exposure levels, albeit that they may not add to them,” Turnell said.

“And that’s pretty much the view we have expressed in the review - that we don’t see bank dividends as being under any threat in the longer term.”

Turnell added that the banking weakness has led investors to question the sustainability of the banks’ future performances and consequently, to question the appropriateness of the sectors heavy weighting within LIC portfolios.

According to Turnell, a raft of new issues in the LIC sector over the last 12 to 18 months, all trading at a discount, may have also contributed to some slowdown in investor interest in these listed vehicles.

Despite some rationalisation of LICs over the period, he said, the sector “continues to grow.”

More than 60 listed managed investments are now listed on the Australian Stock Exchange, with the market capitalisation of the sector now standing at approximately $12 billion.