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How I’d invest $50,000 into LICs today

One of the easiest ways to invest into the ASX share market is through a listed investment company (LIC) on the ASX.

The job of the LIC is to simply invest into other shares on the stock exchange. There are different types of LICs such as ones that have low operating costs and fairly closely follow an index, others invest completely different to an index.

Some investors just purely invest in LICs (and exchange-traded funds (ETFs)) and do very well.

So, if you want to give the investing reins to someone else then these LICs could be good to invest in with $50,000:

Australian United Investment Company Ltd (ASX: AUI) – $15,000

My pick of the low-cost LICs is Australian United Investment Company, which has been going since 1953 when it was set up by Sir Ian Potter, The Ian Potter Foundation is still the LIC’s largest single shareholder.

Since the 1993 financial year it has maintained or increased its dividend every single year, which is very attractive. In FY18 its management fee was only 0.10%, which is very cheap compared to many other LICs.

At the end of December 2018 its underlying assets were worth $8.44 per share before tax, compared to the current share price of $8.26, so it’s trading at a slight discount.

Most of the ASX’s blue chips are trading cheaper compared to recent times, so it could be a decent time to buy Australia United shares whilst its underlying holdings are cheaper. It has as grossed-up dividend yield of 6%.

WAM Microcap Limited (ASX: WMI) – $10,000

WAM Microcap is the LIC in the Wilson Asset Management stable that invests in the smallest shares on the ASX, ones with market capitalisations under $300 million.

I believe small caps can generate the biggest returns because their small size means they have the biggest room to grow. Big businesses just don’t have the growth horizons that they did when they first started.

Most investors don’t look at small caps, so the businesses in WAM Microcap’s hunting ground usually trade on a smaller earnings multiple than their large peers.

Since inception WAM Microcap’s portfolio has delivered a return of 14% per annum before fees and expenses, despite the market volatility. Over the long-term I think this could be one of the highest-performing LICs.

The current grossed-up dividend yield of 4.4% is a bonus.

Naos Emerging Opportunities Company Ltd (ASX: NCC) – $10,000

This LIC operated by Naos also aims for the smallest businesses on the ASX, ones with market capitalisations under $250 million, so it can also benefit from the small cap dynamics I mentioned in the WAM Microcap section above.

Naos looks to invest in a small number of businesses that it has a high-conviction in. Why hold your 40th best idea?

Despite the market declines over the past few months, this LIC’s portfolio has returned 12.4% per annum since inception in February 2013 before fees but after expenses.

It also aims to pay a growing sustainable stream of fully franked dividends from the gains it makes. It currently has a grossed-up dividend yield of 9.5%.

WAM Global Limited (ASX: WGB) – $15,000

WAM Global is a LIC that invests in overseas shares. The ASX only represents 2% of the total global share market, so you’d think there are some good opportunities in the other 98% of the world.

Indeed, US, Asian and European shares generally trade on a cheaper earnings multiple than their Australian counterparts.

I believe (and hope) that the WAM investment strategies and philosophy will work well on the global share market stage as it has done on the ASX.

Foolish takeaway

I think all four of the above shares are priced attractively today. WAM Global, Naos and WAM Microcap all have the potential to beat the ASX market over the long-term, which is why I own some of them in my portfolio for the growing dividends and potential capital growth.

Other ASX shares that are delivering income and capital gains for shareholders every year are these reliable ASX shares.

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Motley Fool contributor Tristan Harrison owns shares of WAM MICRO FPO and WAMGLOBAL FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Scott Phillips.

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