The demand for the Listed Investment Company (LIC) and Listed Investment Trust (LIT) sector holds steady despite a decline of 0.6% in the sector’s market capitalisation to $52.8 billion in the past 12 months.
According to the Listed Investment Companies and Trusts Association (LICAT), the steady capital base of a LIT allows it to invest in, and provide unitholders with the benefits of exposure to, longer term assets, while still providing those underlying shareholders with liquidity (the ability to buy or sell units at any time on market).
This is possible since LITs, like other trust structures such as exchange traded funds (ETFs) and managed funds, passed through income to investors untaxed. However, because of their closed end structure, and unlike open-ended ETFs or managed funds, LITs had a fixed capital base and were not forced to sell assets to meet withdrawal requests.
LICAT’s chief executive, Ian Irvine, said that in the reality of 2021 with the environment in which there would remain many challenges for society and for investors and the world would continue to grapple with the complexities of the COVID-19 pandemic, low interest rates, combative politics and an increasing urgency to address climate change, the supply of steady long-term investment capital to businesses in return for a sound level of investment income would be particularly important.
Also, an interesting development within the sector over recent years was the continuing growth of LITs, which utilised a closed end trust structure with the value of LITs standing now ~$10.6 billion and accounting for around 20% of the ~$52.8 billion LIC/LIT sector at the end of December 2020.
“Australia’s closed end investment sector consisting of LICS and LITs continues to be one sector suited to contributing this capital to business on one hand while providing investors with both liquidity and income on the other,” he said.
“As the sector enters its 98th year of continuous operation in Australia, it continues to provide retail investors and SMSF trustees with access to some of the largest and most cost-efficient actively managed investment entities in Australia.
“The significant longevity of the sector reflects the benefits of prudent and conservative management over many decades and over many different and at times difficult investment climates.”