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Investments, LICs

LICs/LITs strong despite market turbulence

LICs LITs COViD

LICs and LITs have remained steady despite the market volatility brought on by the COVID-19 pandemic, a representative body has stated.

The listed investment companies (LICs) and listed investment trusts (LITs) sector has held steady despite the economic impact of the COVID-19 pandemic, the Listed Investment Company and Trust Association (LICAT) has said.

According to LICAT, the LICs and LITs sector dropped by 2 per cent to $44 billion over the 2020 financial year, compared to a 10.9 per cent fall in the market capitalisation of the S&P/ASX 200.

Over the same period, the capital value listed on the Australian Securities Exchange (ASX) dropped by 7.3 per cent to $1.9 trillion.

LICAT chairman Angus Gluskie noted the market cap for LICs and LITs had risen by 9.1 per cent, the equivalent of over $3.7 billion, since the peak of the COVID-19 pandemic in March.

“Over the latter part of the 2019/20 financial year, LIC and LIT managers have been presented with some of the most challenging times in living memory following the fallout from a global health emergency and a turbulent time on financial markets,” Gluskie said.

“However, it is pleasing to see that demand for LICs and LITs remains steady and to see LIC and LIT managers capably navigating this environment.”

Bell Potter Securities LIC specialist Hayden Nicholson noted the 2020 financial year had been a volatile one for the LIC and LIT sector, but pointed out Australian equities had faced the same difficulties.

“We see this as a unique opportunity for fund managers as many LICs/LITs begin to rebalance their portfolios and acquire financially strong securities at a lower investment cost,” Nicholson said.

Gluskie also highlighted the closed-end structure of LICs and LITs as being particularly advantageous for investors.

“The efficiency and stability of their closed-end structure coupled with the corporate governance disciplines of ASX listing have proven to be far more durable than many other investment structures,” he said.

In May, the federal government announced stamping fees relating to LICs and LITs would be banned from 1 July.

Last month, LICAT acknowledged the significant difference the ban would make and called on the industry to adapt effectively to the change.

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