With a surge of Listed Investment Companies (LICs) coming to market recently in Australia, there are now over 60 LICs listed on the ASX with a combined market capitalisation of more $25 billion – up 15.1% over the last 12 months and a remarkable 52.1% over the last 24 months. A key feature of this investment vehicle is that, unlike unlisted managed funds, it can trade at a premium or a discount to its underlying asset value. Over the last ten years, Australian LICs have traded at an average discount to net tangible assets (NTA) of 6%. Today the median discount is 4%, with some LICs trading at significant premiums to NTA including Djerriwarrh Investments Limited (ASX:DJW) and WAM Active Limited (ASX:WAA) with share price premiums of 24.0% and 34.0% respectively (as at 10 October 2014).
In an article for Cuffelinks, I outline the reasons why LICs trade at premiums or discounts.
To read the full article, click here.