Popularity of LICs rising with SMSFs

The ongoing popularity of listed investment companies (LICs) with SMSF trustees is due to their reliable fully franked dividends and their relatively low cost as an investment vehicle, among other factors.

Clime Asset Management head of investment Anthony Golowenko added that the LIC structure presented advantages for the manager as well as the investor.

“LICs have permanent capital and therefore can utilise the opportunity created by market volatility,” Golowenko explained.

“This often produces buying opportunities for the manager, who can take advantage of shares which are trading below their intrinsic value.”

The convenience of a LIC’s closed end structure was another major attraction for investors, who could buy or sell shares in the LIC rather than transact in the many shares in its underlying portfolio, he noted.

The LIC had a fixed pool of assets that only changed when it issued shares to raise capital or had dividend reinvestment or option plans, he said.

Further, this fixed pool of assets made the management of dividends and franking credits easier in a LIC compared with a unit trust contending with inflows and outflows around distribution dates, Golowenko said.

As an example, Clime Capital (CAM) paid quarterly franked dividends, which were sought after by SMSFs and investors who were drawing down their retirement savings and needed consistent, dependable income, he said.

CAM was offering investors a gross dividend yield of 8.5 per cent on its ordinary shares after taking franking credits into account.

It was trading at a discount to its net tangible assets, which meant there was a potential upside for new investors, should this gap close at a later date.

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