I just invested in an ASX share for my portfolio for the long-term. I decided to go with listed investment company (LIC) MFF Capital Investments Ltd (ASX: MFF).
What is a LIC?
A LIC operates as a company just like any other operating company. LICs are particularly interesting because their job is to invest in other shares on behalf of investors.
Most LICs don't have as cheap operating costs as exchange-traded funds (ETFs) because ETFs don't have the active management element (or fees). But I think some LIC fees are worth it because they can provide outperformance after fees, or perhaps better sustainable income.
There some old LICs that are focused on providing reliable income such as Australian United Investment Company Ltd (ASX: AUI) and Whitefield Limited (ASX: WHF). There are also some LICs that focus on small caps like Naos Emerging Opportunities Company Ltd (ASX: NCC) and WAM Microcap Limited (ASX: WMI).
So, what's MFF Capital about?
MFF Capital is a ASX share operating as a LIC that targets international shares. It's being operated by the co-founder of Magellan Financial Group Ltd (ASX: MFG), Chris Mackay.
The investment objective of MFF Capital is to maximise compound risk adjusted after-tax returns identifying and investing in a minimum of 20 shares, focusing on ones that have attractive business characteristics, and buying at a good price.
MFF Capital aims to find businesses with competitive advantages, that earns high returns on invested capital, whether it can keep deploying money at a high rate of return, the scalability of the business, whether technology will impact the company, whether it will benefit from globalisation and if the business has management which are honest, capable and focused on long-term shareholder value.
What shares pass that stringent investment research process? Its largest holdings include Visa, MasterCard, Home Depot, CVS Health, Facebook, Berkshire Hathaway, Microsoft, CK Hutchison, Flutter Entertainment, L'Oreal and JP Morgan Chase. I think this is a high-quality portfolio list.
The ASX share has done very well over the past decade. Indeed, it has been one of the top-performing LICs. According to CMC, MFF Capital has delivered average total shareholder returns (TSR) per annum of 17.5% over the past 10 years.
Mr Mackay actually owns around $200 million of MFF Capital shares. So that shows he's very aligned with regular shareholders and he continues to buy shares when he thinks there is value.
Why I bought the ASX share for my portfolio
I think MFF Capital is one of the best LICs and I think Mr Mackay is one of the best fund managers. It actually has much cheaper operating costs than many other actively-managed funds that target international shares. MFF Capital has fixed fees, so as it gets bigger the operating costs as a percentage will be lower. That's attractive scalability in my opinion.
Mr Mackay recently bought MFF Capital shares at around the current MFF share price, so I think it's a good time to be buying shares.
MFF Capital still has a sizeable cash position – 28.9% of the portfolio at 30 September 2020 – but it has been investing some of the cash recently. I like the places that MFF Capital has been putting money including a few Japanese shares, Berkshire Hathaway and Flutter Entertainment.
The commitment to steadily grow the dividend is also attractive to me. It's good to receive some of the investment gains in the form of a rising dividend and benefit from the generated franking credits. Once the annual dividend reaches 10 cents per share, that would represent a grossed-up dividend yield of 5.5% at the current MFF Capital share price. That's a solid yield in this COVID-19 era of capital preservation by companies.
