Should younger investors consider investing in LICs?

Growing numbers of young investors are seeking to invest in listed investment companies (LICs), attracted by their longevity.

Listed investment companies are closed-ended vehicles listed on the ASX that don’t issue new shares or cancel existing shares as investors join or leave. Instead, they issue a fixed number of shares in an initial public offering which are then bought and sold on the exchange, allowing the manager to focus primarily on investing. 

Last week, Money Management wrote how trading platform, Openmarkets, had noted a trend of younger investors seeking investments in LICs.

“Listed investment companies saw strong net buying from Gen Y and Z throughout Q2 and the financial year,” Openmarkets chief executive Dan Jowett said.

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“[LICs] have returned to popularity in the past 12 months, with many younger investors taking advantage of low LIC share prices, many of which have recently traded at a discount to asset book value.”

The ASX Australian Investor Study found the amount of people invested in LICs was unchanged between 2020 and 2023 at 10 per cent. Broken down by gender, 5 per cent were held by women and 15 per cent were held by men.

The exchange said there is a trend of “falling popularity” in LICs, which it attributed to the market downturn in 2022, lack of new issuance and a resulting drop in publicity.

However, when broken down by age, the study noted the largest proportion (13 per cent) were held by next-gen investors aged 18–24 compared to 8 per cent of retirees.

Data from share platform Stake provided to Money Management showed LIC/LITs are currently held by 10 per cent of those aged 25–34 year olds and 14 per cent of those aged 35–44 years old. 

The highest percentage of those who invested in them in the last 12 months is 13 per cent of 18–34 year olds. Over the past year, they are most popular with those aged 30–35, Stake said.

It said the most popular LIC/LITs over the past 12 months on its platform are: 

• AFI: Australian Foundation Investment Co Ltd
• WAM: WAM Capital
• ARG: Argo Investments LTD
• BTI: Bailador Technology Investments
• MOT: Metrics Income Opportunities Trust
• RF1: Regal Investment Fund
• PL8: Plato Income Maximiser Ltd
• WAX: WAM Research Limited
• LSF: L1 Long Short Fund Ltd
• WLE: WAM Leaders Ltd

Speaking to Money Management, Angus Gluskie from the Listed Investment Companies and Trusts Association (LICAT) and chief executive of Whitefield, said the appeal of listed vehicles is their longevity. 

Australian Foundation Investment Company (AFIC) has been around for 95 years, for example, while Argo Investments has been around for more than 70 years.

“Investors have noticed they are a secure place to be. They have been a tried and tested methodology, they are cost-efficient and have a good level of momentum behind them,” Gluskie said.

“They can hold long-term investments which gives access to a different set of assets and a higher yield.
“This focus on long-term investment can suit those with a long-time horizon – young people want to be in things that can last them 20–30 years of accumulation mode. Many investors have been invested for decades, and that means you don’t incur the cost of switching. It’s a structure that lends itself to longevity,” he explained.

But Marc Jocum, senior manager for investment and business initiatives at Stockspot, disagreed and said: “Our view is investors, particularly younger investors, are better off just sticking to ETFs. They simply don’t have the same level of transparency, tax efficiency and return consistency.

“LICs also regularly trade at a discount to their assets – this is due to investors discounting their future fees from the share price. This doesn’t happen with ETFs which trade very close to their asset value due to the arbitrage that exists because they are fungible.”

He noted that while the ASX study showed 13 per cent of next-gen investors held LICs, 33 per cent held ETFs which is second only to Australian shares.