For those investors looking for instant diversification, listed investment companies can provide just that.
Operating much like managed funds or exchange traded funds (ETFs), listed investment companies (LICs) invest in a wide array of stocks and charge a management fee.
Profits are mostly paid out as dividends, and some of the largest pay our decent fully franked dividends, while charging very low management fees. In some cases, those management fees can be lower than ETFs, making LICs a great option for investors looking for low cost exposure to the ASX market.
Australian Foundation Investment Co.Ltd. (ASX: AFI) is the largest listed LIC on the ASX, with a market cap of more than $6 billion, and pays a fully franked dividend of around 3.7%. What's even better is that dividends have grown at more than 4% each year over the past 10 years. Over the past 10 years, AFIC has generated average annual returns of 10.9%, including dividends. Management costs are also very low at 0.18%, amongst the lowest of all LICs, and lower than the SPDR ASX 200 Fund (ASX: STW) at 0.28%.
Argo Investments (ASX: ARG) is the second largest LIC, with a market cap of $4.7 billion. Argo also boasts low management fees at 0.18%, and pays a similar fully franked dividend yield to AFIC of 3.7%. Investment performance basically matches that of the index, given Argo currently holds 103 companies in its portfolio.
The third largest LIC is Milton Corporation Limited (ASX: MLT), with a market cap of $2.7 billion. Milton pays a fully franked dividend yield of 3.9%, and has regularly paid our fully franked special dividends. With a management expense ratio of just 0.13%, Milton is the lowest cost LIC on the ASX – perhaps one reason why Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) held $133 million in Milton as at the end of July 2013.
All three companies offer dividend reinvestment plans, which can be an easy way to top up your holdings by taking shares rather than cash dividends, without any brokerage costs.
Foolish takeaway
Listed investment companies offer investors a cheaper alternative to expensive managed funds, and the flexibility of buying or selling out just like any other share. The above three are possibly the best LICs on the ASX.
