The listed investment company (LIC) sector has been forced to fight back since the advent of exchange-traded funds (ETFs) that have eaten into its market. Some of the largest Australian LICs, such as Argo Investments (ARG) and Australian Foundation Investment Company (AFI) have taken their management costs down to 0.18% a year, to be competitive with the Australian equity ETFs.
LICs are still a larger sector than ETFs: at the end of May, there were 108 LICs trading on the Australian Securities Exchange (ASX), with a total market capitalisation of $39.9 billion, compared to 182 ETFs/ETPs (exchange-traded products), valued in total at $38.1 billion. But average daily value of trade is skewed heavily in favour of the ETFs, at $123 million compared to $25 million.
The LICs have a number of attributes that, for some investors, can be considered advantages over ETFs. Where an ETF must distribute all of its income each year, a LIC only distributes its income when its board declares a dividend. As LICs pay tax at the company tax rate, the distributions are usually fully franked dividends.