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SMSF interest in LICs to persist

SMSF investors were showing continued interest and support in listed investment companies (LIC) as the structure became more popular, according to one of the largest LICs in Australia.

“Overall from our perspective, there’s been a lot more interest in the LICs that we run from an adviser perspective and we’re seeing a lot more SMSFs come on to the share registry over the last few years, particularly as the Future of Financial Advice reforms have come into play,” Australian Foundation Investment Company (AFIC) business development and investor relations general manager Geoff Driver told selfmanagedsuper.

“I also think that a lot of people are willing to do it themselves, which is at the essence of SMSFs, but they’re still outsourcing some investment decisions to people like us at a relatively low cost.”

Driver said about 25 per cent of AFIC, which had a market capitalisation of $6.81 billion, were SMSF investors.

“We’ve been around for a long time and we’ve got a pretty loyal shareholder base, so the incremental growth has come from a number of areas and SMSFs happens to be one of those,” he said.

“A lot of our new growth has come through SMSFs, there’s no doubt about that.”

He said he expected more SMSFs to invest in LICs going forward.

“Yes, I think that will be the case and that’s why some of the traditional fund managers have come to use the LIC because it’s a way of accessing distribution that they wouldn’t necessarily get through their unlisted trusts,” he said.

“Also, the ease of trading on the ASX is appealing to a lot of SMSFs and advisers.

“Importantly, there have been many LICs coming to the market because the fund managers like that sort of structure for a number of reasons and, from our perspective, allows us to invest for the medium to long term.

“There’s been a lot of publicity and research around them, so there’s more understanding of the sector – that’s why I think they’ve become a lot more popular.”

While AFIC invested a lot of time with advisers, there were three key issues that made LICs attractive, he said.

“One, from an adviser perspective, is if you think about all the things that could potentially go on in the equity market in terms of corporate actions, takeover offers, et cetera, we actually manage that for them on their behalf, so there’s simplicity from that perspective,” he said.

“Another piece is the fully franked income – I think SMSFs understand that in terms of the fact that distribution is really simple, unlike a trust, which can have some complex distribution outcomes for investors.

“The third thing, which is clearly very important, is where the share price is relative to the net asset backing – there’s a greater understanding of this these days, but whether they understand it completely right across the board is another issue.

“Fortunately from our perspective, AFIC in particular, the share price over the long term has tended to equate with the performance of the portfolio.”

Last month, the group released its full-year results for its four LICs.

AFIC made a profit of $293.5 million for the year ended 30 June 2015, an increase of 15.5 per cent on the previous corresponding period.

Djerriwarrh reached a profit of $46.9 million, up from $42.9 million the previous financial year.

AMCIL, with a market capitalisation of $212.9 million, made a profit of $7 million, up 11.2 per cent.

Small and mid-cap LIC Mirrabooka reported a profit of $7.1 million, compared to $7.8 million last year. The fall was the result of a slight reduction in dividend income due to adjustments in the portfolio.

Commenting on whether the group would launch more LICs, Driver said the companies were currently running efficiently.

“The question that goes through our minds is: ‘Where can we add value?’” he said.

“We have toyed with the idea of international equities and we’d never say no, as that’s a decision for the board, but it’s probably not high on our list of priorities, though we’re always keeping a look out on what’s happening in the market.”

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