Why the move away from LICs?

Reading forums outside PC, there appears to be a move from LICs to ETFs, with some saying 'LICs are dying' (although no reason given so unsure whether these types of statements have any substance).

When newbies ask 'what should I buy', the response is usually a bunch of ETFs - VDHG, DHHG, VAS, VGS etc etc (no advice here).

Why not LICs?
They
- pay fully franked dividends (ETFs also pay a distribution although not fully franked),
- many have been around for decades and have been through recessions, ups, downs etc
- are a significant size (combined with the test of time), unless something significant happens, will continue on
- have comparable management fees

However, my ETFs have had a steady rise in share price, compared with a relatively stagnant price for LICs. This to me, is an indication of the popularity of each type.

I see the two as interchangeable, and am interested in others' views. Are you a LIC only, ETF only, mix, moving one way to the other, investor? Why?

 

Franking credits don't just appear, they are a function of the company paying tax. ETFs are paying dividends without paying tax (passing through some from underlying companies). Franking is seen as a legislative risk by some.

Comparable ETFs are bigger if that is what you seek.
Cap weighted ETFs have a very simple mandate, even old LICs can change over time, have management changes etc.

Comparable ETFs are cheaper in general still.

Perhaps an indication of popularity of LICs (among other factors). Popularity of ETFs isn't a factor in their price.

I hold both, focus is on ETFs currently. LICs need to be priced below NTA for me to consider them.

The FIRE movement, at least those running the MMM based theories use a lot of statistical analysis and idiot proofing. ETFs are a clear choice over LICs in this space and groups adhering to this will therefore promote ETFs.

 

Sounding the Depths - A Skeptical View of Listed Investment Company Investing - The FI Explorer LICs - are they all they are cracked up to be? — Passive Investing Australia

 

Current plan for my portfolio is to use LICs / BKW / SOL for stability of income return with some additional capital eventually allocated to ETFs.

It's the LICs that provided greater stability of income after the market crashed in March last year.

For the moment though I have a focus on smallcaps outside of super. All my dividend holdings are in my super.

 

If one has MLT, it looks like one will soon have even more SOL.

 

I'm not just investing for me but my wife also who may outlive me. Hence given her disinterest in investing the greater emphasis on simplicity. Index funds = no SPPs, Rights Issues, less chance of mandate change not to mention mergers and the admin / decision making that accompanies all these.

Yes I'm taking a less selfish approach to investing nowadays and thinking of those left behind when I'm gone.

 

It's basically a index fund v managed fund decision?

 

1. Bill Shorten and Labour's policy at the last election raised the risk of losing franking credits, which are a strong reason to hold LICs.
2. Evidence of self-serving managers.
3. Total performance (TSR) of ETFS, including growth and yield appears higher.
4. Although some of the big large cap Australian LICs are similar to VAS, they are still actively managed. I don't believe their active management beats passive, especially given their huge FUMs, which means they have no agility or ability to really take advantage of any arbitrage.
5. Although many LICs are at a discount to NTA, they seem to stay in a similar range, so there doesn't appear to be any opportunity to buy at a discount and sell at a premium.
6. There is a risk that a LIC can dispose of their portfolio, in which case the post tax premium means the shareholders will lose.

I still hold LICs and intend to for the long term, unless there is a particular reason to exit (eg MLT), as they I will incur a CGT bill that can be avoided by holding. I will accept the risk based on my existing holdings but buy no more.

 

This is both true, and misleading. LICs funded dividends through cash reserves, whereas ETFs distribute all income and don’t hold reserves.

If you look at a portfolio holistically it’s arguable that you don’t want to be paying fees on cash held by LICs and you can manage your own cash buffer.

 

Only one LIC (AFI). Is there any comparable info for, say, VAS, or other ETF provider? I've looked at the Annual Report for VAS but cannot spot it.

 

I was having a poke around to see if the numbers showed the take up of the DSSP as that could account for some or all of the increase in shareholders but the information isn't there.

I was going to look at other LICs which offer the same option but decided nup. Too much work.

Nor is there any information I can find which would show the number of shareholders who exited the register entirely or reduced their holdings.

Anyways, as long as what I hold is doing the job I want them to do, I'll let them keep doing it.

 

It's the Sabbath @SatayKing, enjoy a coffee or two with a side of chicken and relax! The lics and etfs will do the work for you!

 

Didn't bother to type that until after a coffee or three and filling my belly with the rest of last night's home-made chicken and avocado (sliced not smashed) pizza.

Surely you should understand my hedonistic but moderate tendencies by now.

 

I do have a serious question tho, if you cast you mind back to the early days of your investing life, I recall you said AFI was the first poison of choice, was there any lump sump investments early on or was it just dipping your toes in with smaller amounts over years and years until you got more confidence and then more disposable income and lived on less than you earnt?? I recall you mentioned a chap at the workplace who you were not a fan of but who seemed to do well in shares and rubbed everyone's noses in it when times were tough and that made you sit up and take note!!!!

May need another strong brew to cast you mind back and reply

 

As per this post from way back when.

 

Staying the course and compounding at its best!!!

 

You have certainly seen the light @Nodrog since I started exploring this forum. Wonder if the 2 people you wrote about having the big dividend incomes of 280k and 410k the clerk and the draftsman are still sticking it out in the lic world or if they jumped ship to the indexing island!!!

 

My super is constructed to mimic VDHG portfolio. Outside of that I'm using LICs as I can be more active in the SPP or any corporate actions, I see these as opportunities to enhance the portfolio performance albeit requiring someone to take actions but it suit my current situation and objective.

 

I love LIC's personally. Best performing holds for me when purchased at the right price.

 

Surely you jest. MLT held its distributions in reserve and reduced their unreducable dividend, and now they are using said funds to sweeten a takeover deal. It was exactly covid that proved dividend smoothing is a joke.