LIC's
Listed Investment Companies (LICs) are very similar to managed funds except instead of buying units you buy shares which trade on the share market. LICs provide investors with exposure to a professionally managed and diversified portfolio of assets. These assets may include Australian shares, international shares, private equity, fixed income securities, and property, with some funds offering packaged strategies. The other major difference is that LICs are "closed end" funds. A key advantage of a "closed-end" listed fund (LIC) in contrast to an "open-end" managed fund is that the investment portfolio is insulated from investor inflows and outflows, as LICs are traded between buyers and sellers on the share market.
Industry veteran Geoff Wilson expands on this in describing the difference between LICs and managed funds: ‘We believe that a closed-end fund is a superior structure to managed fund/unit trust structures. With closed-end funds or LICs, the manager of the fund does not have to sell stocks in the portfolio to raise cash for a departing investor. That means investment decisions are based on the fundamentals of the companies the manager invests in, rather than money flow via redemptions. Most other funds, like managed funds and mutual funds, are open ended. This means that when an investor wants to leave the fund the manager is forced to liquidate stocks to finance the redemption. This places pressure on the manager who has to put fundamental investing to the side while he or she manages the cash flows. Invariably, most investors depart a fund when stocks have fallen significantly, which historically has proven to be the best time to buy. This means the manager may have to sell companies which they believe represent good value.’
(The above is an extract from an article written by Gordon Austin, a well know LIC investor. A more comprehensive version is in the following link. It is worth reading because there are other advantages to using LICs)
Link to Beginners Guide
Industry veteran Geoff Wilson expands on this in describing the difference between LICs and managed funds: ‘We believe that a closed-end fund is a superior structure to managed fund/unit trust structures. With closed-end funds or LICs, the manager of the fund does not have to sell stocks in the portfolio to raise cash for a departing investor. That means investment decisions are based on the fundamentals of the companies the manager invests in, rather than money flow via redemptions. Most other funds, like managed funds and mutual funds, are open ended. This means that when an investor wants to leave the fund the manager is forced to liquidate stocks to finance the redemption. This places pressure on the manager who has to put fundamental investing to the side while he or she manages the cash flows. Invariably, most investors depart a fund when stocks have fallen significantly, which historically has proven to be the best time to buy. This means the manager may have to sell companies which they believe represent good value.’
(The above is an extract from an article written by Gordon Austin, a well know LIC investor. A more comprehensive version is in the following link. It is worth reading because there are other advantages to using LICs)
Link to Beginners Guide
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