Investors in Australia’s biggest Listed Investment Companies (LICs) have witnessed mixed fortunes over the last twelve months. While on paper an annual return in the range of 13.4% to 14.2% looks pretty commendable, this masks the fact that they have underperformed the benchmark S&P/ASX 200 accumulation index by 1.9% to 2.7% over this period. And if share price performance is considered (growth in share price plus dividends), they have fared even worse as the premium to NTA (net tangible asset value) has evaporated. The largest, AFIC, has returned only 8.2% on this measure over the 12 months to 31 October.
Part of the reason for the underperformance of the major LICs is that they tend to invest in the major cap stocks, and the top part of the market has underperformed relative to the mid and small caps. Many of our major companies (the major banks, retailers, insurance companies, telcos etc) are somewhat “growthless” and are struggling to increase shareholder returns. This is reflected in the return of the ASX 20, which is 13.57% for the 12 months to October, 2.56% below the return of the S&P/ASX 200 of 16.13%.
As the following table makes clear, the top part of the market has underperformed over the last few years. Interestingly, it’s almost a reversal what happened over the first half of the decade, when the market was led by the major stocks. On a 10 year basis, the top 20 stocks have outperformed the S&P/ASX 200, while underperforming on a 1 year, 3 year and 5 year basis.