Finally Listed Investment Companies having a day in the sun AUSTRALIAN listed investment companies (LICs) have endured many years in the investment shadows, outshone by both managed funds and exchange-traded funds. For a time there was even talk of the 60 or so LICs on the Australian Securities Exchange fading into obscurity as investors parked their capital elsewhere. Finally, LICs are having their day in the sun ... and shareholders are being rewarded with impressive returns. The renewed interest from investors has been great news for the likes of Australian Foundation Investment Company, Australia's oldest LIC. Listed more than 80 years ago, AFIC is also the largest - with a market capitalisation of more than $5.6 billion. It's followed closely by another LIC veteran, Argo Investments, which was formed in the 1940s and has a market cap of about $4 billion. But renewed investor interest has also culminated in a wave of new LICs floating on the stockmarket. William Spraggett, head of listed managed investments at Bell Potter, says LICs have become increasingly popular among investors. I definitely think there's been a huge uplift in the last 12-18 months. You go back 18-24 months and I used to get phone calls from people saying the LIC industry was dead and buried. But the reality is these are closed-end funds and there's no horizon clause on these vehicles. The industry was never finished. Closed-end funds raise a fixed amount of capital on their listing, and then trade like an ordinary share on the stockmarket. [LICs] have been around for a very long time and I think market conditions are very supportive for a new product that is being delivered by proven managers. The Future of Financial Advice (FoFA) reforms that came into effect on July 1 have played a big part in changing the fortunes of LICs. Prior to the reforms, financial advisers favoured unlisted investment trusts over LICs due to the hefty commissions they received. With such commissions now banned and advisers legally bound to act in the best interests of their clients, LICs are finally operating on a more level playing field. This has in turn given rise to an increase in the number of LIC initial public offerings. Watermark and NAOS were two that listed earlier this year. Sandon Capital Investments will shortly list on the ASX, while PM Capital is rumoured to be planning its own LIC IPO in the near future. Suddenly, the industry is alive again. "I definitely think it will support LICs this year and going forward," Spraggett says. Over the last 12 months I've been receiving a lot of phone calls from people looking at the idea of [listing LICs). Whether they all execute, your guess is as good as mine. But I'd be pretty surprised if we didn't see a few more come to market. The growing interest in LICs has also been partly fuelled by the attractive dividend yields on offer, with some delivering yields above 7 per cent. For the first time in a long time, the future looks bright for LICs. One factor prospective investors will need to consider with an LIC is its ability to trade at a discount or a premium to its net tangible assets, which as Scott Francis pointed out in a Eureka Report article last week, makes returns somewhat less predictable. While a managed fund always trades at its net tangible asset (unit price), an LIC can trade at a discount or premium to the value of its portfolio. This offers opportunities (to purchase assets at a discount) and challenges (what if the share price of an LIC falls relative to the NTA - reducing shareholder return?)," Scott wrote. In fact, as LICs have increased in popularity, a lot of the discounts they were trading at have evaporated. A number of the bigger names are even trading at slight premiums right now. Cliona O'Dowd is chief reporter of Eureka Report. To read more by Cliona O'Dowd and other experts, visit eurekareport.com.au