Q: We are looking for a diverse portfolio with a limited budget of about $400,000. Can you tell me which listed investment companies (LICs) you would recommend? Is it best to purchase a number of stocks in this area to spread risk?
A: If you are looking for LICs that manage diversified equity portfolios, I would consider the three major companies – AFIC, Argo and Milton. (ASX Codes AFI, ARG and MLT, respectively).
James Dunn recently wrote a review in the Switzer Super Report on Argo and AFIC – recommending Argo. You can read about it in Two simple ways to beat the market.
As he points out that a key issue when buying an LIC is at what discount (sometimes a premium) it is trading to its Net Tangible Assets (NTA). It is worthwhile reviewing this before deciding on the stock.
Bottom line – I don’t think you can go wrong with any of these aforementioned LICs – they all have great track records. Have a look at their “top 10 holdings” and “sector weights” – this will give you a good guide to their investment biases, and whether these suit your investment objectives. I don’t think you need to spread it as they maintain fairly diversified portfolios.
However, if you are looking at the speciality/high alpha style LICs, then I would definitely mitigate some of the “manager risk” and spread it across a number of LICs.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should consider the appropriateness of the information in regards to their circumstances.
