Last week we looked at some of the newer exchange-traded funds (ETFs) that have arrived in the Australian marketplace, offering investors the ability to tap into quite precise investment exposures to complement their core strategy, at relatively low cost. ETFs have proven very popular with self-managed super funds (SMSFs) because they are listed stocks, direct investments themselves, allowing investors to invest – or redeem – any amount of money at any time.
The same listed nature and direct liquidity is also a feature of the older listed investment company (LIC) structure – and this vehicle has also seen a flurry of new products, some specifically aimed at SMSFs.
One of the main differences between LICs and ETFs is that the former category is more likely to represent an actively-managed portfolio. LIC product development reflects this, with stocks offering highly specific strategies. The central problem with this is that just as an actively managed LIC offers the potential for outperformance. It is not guaranteed, and if management gets it wrong, the LIC can underperform.