Why I think it’s better owning LICs over blue chips

When people think of Australian blue chips they probably think of businesses like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB), Telstra Corporation Ltd (ASX: TLS), Macquarie Group Ltd (ASX: MQG), Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES).

If you’ve owned those businesses for the last 20 years then your portfolio will have done very well.

However, I don’t think owning the above shares is the safest way to invest in the share market any more.

With a potential housing crash, the arrival of Amazon and TPG Telecom Ltd (ASX: TPM) launching its own mobile network, it’s easy to see how each of our big businesses could have a bad time over the next few years.

I can completely understand if investors don’t want to lose their exposure to the big end of the Australian market but I think there’s a better way of doing it.

Listed investment companies (LICs) are companies that purely invest shareholders’ money into other businesses. Some of them have been going for decades and many haven’t decreased their dividend for at least a decade. Some have maintained or increased their dividend going back to the 1990s.

All of these LICs own all the same big companies as part of their top holdings but aren’t as risky because they own lots of different companies.

Some of my favourite large-cap focused LICs are Australian Foundation Investment Co. Ltd. (ASX: AFI), Australian United Investment Company Ltd (ASX: AUI), Whitefield Limited (ASX: WHF), Argo Investments Limited (ASX: ARG), Milton Corporation Limited (ASX: MLT) and Bki Investment Co Ltd (ASX: BKI).

The grossed-up dividend yields of the above LICs range from Whitefield’s 5.44%% to Bki’s 6.47%.

A portfolio of the above LICs would still create a concentration of the biggest companies but at least there would be a lot more diversification.

Foolish takeaway

I’m not a shareholder in any of the big cap LICs yet because I think the large companies may fall a fair amount in the next couple of years, but I do plan on being a shareholder in at least one or two of them at some point.

Until then, I’m filling my portfolio with long-term growth shares like these.

Top 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks means stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

If you’re expecting to see the likes of Commonwealth Bank, Telstra and Wesfarmers shares on this list, you’ll be sorely disappointed. Not only are their dividends growing at a snail’s pace, their profits are under pressure too due to the increasing competitive environment.

The contrast to these “new breed” blue chips couldn’t be greater… especially the very real prospect of significant share price gains, something that’s looking less likely from the usual blue chip suspects.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited, Telstra Limited, and Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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