The Australian Foundation Investment Co.Ltd. (ASX: AFI) share price closed at $6.10 overnight, the highest price it has seen in more than a year.
While many investors see the $7.2 billion listed investment company (LIC) as the first place to invest it, at these prices, investors may be paying too much. At the end of June 2017, the LIC's net tangible assets before the final dividend was $5.89 per share. That's lower than the existing share price. Even adding in the final 14 cents per share dividend means the current share price is higher than the NTA per share. As some compensation, the dividend is fully franked which is great news for low-tax entities like self-managed super funds (SMSFs). Shareholders also received a 10 cent dividend back in February 2017.
Management fees are very low at 0.14% – especially compared to many managed funds that charge more than 1% of average assets and a performance fee on top of that. And AFIC as it is more commonly known generated an 11.7% return on its portfolio of stocks over the 12 months to end of June 2017. The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) Accumulation Index, which includes dividends reinvested saw a return of 14.1% for the year.
Investors may want to consider investing in any one of several exchange traded funds (ETFs) that tracks the S&P/ASX 200 Index which have even lower expenses than AFIC. Because of AFIC's size, the LIC is required to invest in Australia's largest listed companies, virtually tracking the index.
iShares MSCI Australia 200 Index Fund (ASX: IOZ) tracks the S&P/ASX 200 index for a fee of 0.15%, or there's the SPDR S&P/ASX 200 Fund (ASX: STW) which benchmarks itself against the same index and charges a fee of 0.19% of average assets under management.
It's not always a good idea to blindly buying shares in an LIC like AFIC and investors need to consider several other factors before doing so.
