The $44 billion Listed Investment Companies (LICs) sector is now dwarfed by other comparative segments: Exchange Traded Products (ETPs), Managed Accounts and mFunds.
As recently as 2015, LICs had almost 50% more funds under management (FUM) than ETPs and nearly triple that of managed accounts, according to findings from Rainmaker Information’s latest Wholesale Advantage Report.
In the five years to 30 June 2020, LICs grew 12% p.a. In comparison, ETPs grew 51% p.a., mFunds grew 71% p.a. and managed accounts had the largest growth being 87% p.a.
LICs, unlike ETPs and mFunds, are structured as a company, not a trust. They are also a closed investment, so the pool of capital held in an LIC is capped.
“The LIC market is highly concentrated. The 20 largest LIC products hold more than half of all LIC market assets,” said Alex Dunnin, executive director of research at Rainmaker Information.
In the past few years LIC assets have shifted from Australian equities towards fixed interest.
“Fixed interest is becoming popular as investors, especially retirees, are desperate to get better yields than they get from term deposits, and seek investments that generate income.”
Two-thirds of LIC assets are held in Australian equities, while 27% is held in international equities, 10% in fixed interest and about 1% in property and infrastructure.
LICs are a specialist product type and this has led to the perception that investment managers tend to specialise in operating only LICs.
However, “LIC managers tend to specialise in a single asset class, with only three of the 20 largest LIC managers operating across multiple asset classes. Although, smaller and medium scale managers were more likely to manage funds across classes.”
Analysis by Rainmaker Information shows that of the 76 investment managers operating in the space, 71% are specialist LIC operators, while 29% are broader investment managers that operate across a wider range of product segments.
The largest LIC managers are AICS, Argo and Magellan with $8.36 billion, $5.28 billion and $4.4 billion respectively.