Blue-chip investment vehicles struggle to beat market returns



The share prices of LICs, on the other hand, will depend on the demand for their shares. This means that their stock prices may move away from the value of LICs’ investment portfolios.

Total returns from an LIC, like any other listed company, are measured by the share price between two points in time, plus dividends. PFRs, in their reports, tend to focus on the performance of their investment portfolios.

Mr Brycki, who is an advocate for low-cost index ETFs, said the appropriate measure of an LIC’s performance is the change in its stock price, plus dividends, as shareholders cannot directly access the performance of their LIC’s investment portfolios.

Max Newnham, Director of TaxBiz Australia and a chartered accountant specializing in tax planning, pensions, SMSF and portfolio building, said there is no point in investing in an active manager if he does not not beat the market.

“I would be hard pressed to find a place in any portfolio for an LIC unless it could beat an index fund,” Mr. Newnham said.

“At the end of the day, it’s the scorecard runs that count and when you look at the traditional PFR scorecard, over a longer period of time they don’t do as well,” he said.

As a corporate structure, PFRs can adjust the share of their profits paid to shareholders in the form of dividends.

And a key part of the large LICs’ investment proposition is to pay fully paid dividends which, over time, increase faster than inflation. This can be particularly valuable for investors who live off their savings.

A spokesperson for the Australian Listed Investment Companies Association, which represents seven major LICs, including AFIC, Argo and Milton, said that while the valuation of the portfolio and the stock prices of LICs fluctuate, in the long run, the portfolio of LICs fluctuates. investment and dividend performance prevail. .

“In the very long term, we tend to outperform the index and index ETFs,” said the spokesperson.

The spokesperson also pointed to the differences in taxation and management fees and questioned whether Mr Brycki’s analysis compared comparable investments.



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