LIC Investing In Australia – 10 Factors To Check Before Buying

When I look back at my investing mistakes, one common theme is rushing into a new purchase. I find I have usually done better when a number of months pass until I begin accumulating a position in a new idea.

When investing in Listed Investment Companies (LIC) [Ed. note: an Australian investment vehicle similar to a closed-end fund] I try to make sure I have considered numerous factors first. That helps me avoid getting itchy fingers and hitting the buy button quickly.

I’ve seen some similar lists around but I thought others may find it useful to share my perspective. Hopefully, I have introduced some different thinking to the topic.

I have less experience investing in closed-end funds on the New York and London exchanges. From my observations though this list also looks relevant to CEFs in general.

If you have suffered from decision regret after rushing in to buy a LIC before (I know I have!), perhaps you can bookmark this page. Keep the list handy to check before hitting the buy button. Please share your comments as I am sure other perspectives can also help and improve the list.

As we are a few years past a flurry of LIC issuance I also observe someones with some pretty ordinary early performance. Hindsight is wonderful of course, but with LICs such as HML, MA1, FPC, 8EC, LSF, BAF, CIE etc., perhaps a checklist like this would have given some food for thought. How many red flags could we have perhaps spotted from a basic checklist?

1) Discount / Premium to NTA.

  • All things being equal a discount preferred, but either may be warranted depending on factors coming up in the next points. Take account of the pre and post-tax measures.
  • Apply extra caution if buying at a premium. I very rarely do so. Don’t buy at IPO is another good rule of thumb.

2) Management Expenses and ALL other costs.

  • Base fee but ALSO performance fees. Is the performance fee based off a fair benchmark?
  • Have you considered other costs such as administration fees, director’s fees, accounting fees etc that could potentially more than double your overall fees?
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