There are two ways to view the Listed Investment Companies market and the growing list of LICs trading at big discounts to their Net Tangible Assets (NTA). The first is that parts of the LIC market will continue to lose favour with investors, unable to boost liquidity in their stock and narrow their discount to NTA.
In this scenario, more LICs will eventually be taken over, merge or return capital to their shareholders. The LIC market will lose more ground to the booming Exchange Traded Fund (ETF) market, underpinned by growth in active ETFs.
The second view of the LIC market is that it is rife with opportunity. The market is awash with double-digit discounts to NTA. Some high-quality LICs are trading at an almost 20% discount to their asset backing.
Put another way, investors can buy assets worth $1 for 80 cents in some LICs – and get a decent fully franked dividend yield as they wait for the NTA to rise.
Both views have some merit. It’s hard to see the LIC market making a big comeback anytime soon. Too many small LICs lack scale and funds for investor relations. They can’t compete with ETF issuers, some of which are marketing machines. The LIC market needs more marketing and profile.
Expect greater consolidation in the LIC market as the largest LICs pick up the assets of fallen competitors or as more LICs that trade at persistently large discounts to NTA fly the white flag and return capital.
Nevertheless, it’s an interesting time to consider quality LICs. Unusually large discounts for some LICs, attractive franked dividend yields, and the prospect of heightened merger and acquisition (M&A) create an unusual situation.
Consider LICs that invest in global equities. Nine of 14 global LICs that Bell Potter researches are trading at a double-digit discount to NTA. Most of these LICs have grossed-up dividend yields above 8% (after franking).
The ASX Investment Products Report [1]s lists all LICs and their pre-tax discounts or premiums to pre-tax NTA. It’s an excellent resource for investors who want to assess premiums/discounts in global LICs and other types of LICs.
Care is needed with premium/discount data on LICs. Some discounts look attractive on paper, yet the LIC trades at a persistently large discount, unable to attract higher demand for its shares. The market might have concerns about the LIC’s performance, management, dividend outlook or liquidity, which are reflected in a large discount to NTA.
Always compare an LIC’s premium/discount to a longer period (three or five years). For example, an LIC might trade at a 20% discount when its five-year average is a 10% discount. In this case, the LIC is trading at an unusually large discount to its longer-term average and warrants a closer look. LIC discounts/premiums often revert to their mean over time.
For all the recent negativity about LICs, it’s worth noting their two main benefits over other fund structures. The first is fixed capital. Unlike open-ended unit trusts, LICs do not have to sell assets during bear markets to meet investor redemptions – at the worst possible time. Some big property funds that are having to curb investor redemptions right now would love such a structure.
The second advantage is the LIC’s company structure, which enables the smoothing of dividends through retained earnings. Unlike most trusts, LICs don’t have to pay their income each year. The ability of LICs to generate consistent franked dividends doesn’t get enough airplay in this market.
The main downside of the LIC’s close-ended structure is discounts to NTA, although that can be an opportunity, depending on your perspective.
Here are two LICs to consider at current prices. Both have a global equities focus and deliver social impact through their philanthropic work
- Future Generation Global (ASX: FGG)
A fund-of-fund, FGG was the market’s first internationally focused LIC to provide exposure to the investment strategy of a high-profile global equities manager. FGG supports charities focused on youth mental well-being.
FGG trades at a 17.3% discount to its latest pre-tax NTA (at the $1.17 share price). FGG’s five-year average discount is 11% on Bell Potter numbers. FGG has a gross dividend yield after franking of 8.8%.
FGG’s profit reserve is worth 52.7 cents a share (at end-September 2023), meaning its dividend looks well covered.
However, FGG has underperformed since inception in 2015. Over three years, FGG underperformed its benchmark MSCI AC World Index by an annualised 7.8% (to end-September 2023). Over one year, the underperformance about 3%.
After a tough few years, FGG’s performance is improving, but its discount to NTA has widened. It’s easy to give up on funds after a period of underperformance, even though that is often the best time to buy. Too many investors ‘chase’ performance by investing in star managers after a brief burst of fund outperformance, only to destroy capital as the fund’s performance peaks.
From its two funds (the other is Future Generation Australia), Future Generation has provided almost $76 million in social investment since inception. That’s vital funding for mental-health charities that have rising demand for their service.
Other global LICs trading at larger discounts, and with takeover appeal, probably present better value than FGG. But for long-term investors who want diversified global equities exposure – and like the idea of supporting mental-health charities, FGG looks interesting at the current discount and yield.
Chart 1: Future Generation Global
- Hearts and Minds Investments (ASX: HM1)
Established in November 2018, Hearts and Minds Investments provides exposure to a concentrated portfolio of equities and supports Australian medical-research institutes. LIC is a high-conviction global equities fund.
HM1 expands the philanthropic vision of the Sohn Hearts & Minds Investment Leaders conference, a premier investment event each year. HM1 has so far donated almost $43.8 million to medical research – a remarkable achievement.
Like FGG, HM1 has underperformed. Over one and three years (to end-September 2023), HM1 has underperformed its benchmark MSCI World Index (AUD) by around 15%. Since inception (2018), HM1 has underperformed by about 2% (on an annualised basis).
HM1 trades at a 16.9% discount to NTA (at $2.26) on Bell Potter’s numbers. For a while, HM1 rallied. But its poor underlying fund performance led to a sharp widening of the discount to NTA this year.
HM1 looks on track to pay a fully franked annual dividend of at least 13.5 cents (its last annual dividend) and has good dividend cover through its profit reserve.
As with FGG, prospective investors in HM1 are right to question the underlying performance and doubt if this model of philanthropic investing can generate sufficient returns over time. But there’s scope for gains from here if both LICs can demonstrate improved investment performance.
Of the two LICs, I prefer FGG. For all its good work in medical research, HM1 is hard to buy right now given its underperformance over one and three years.
Still, it’s worth keeping a watch on HM1, which has been volatile in the past few years, and has some interesting stock ideas among its top portfolio holdings.
Chart 2: HM1

Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal investment advice. It has been prepared without considering your objectives, financial situation or needs. Before acting on information in this article consider its appropriateness and accuracy, regarding your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at 18 October 2023.