The AFIC (ASX:AFI) share price is steady today as the ASX 200 falls

Investor psychology helps explain the AFIC share price moves today.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Australian Foundation Investment Co. Ltd (ASX: AFI) share price booked gains this morning while the major benchmarks swam in a sea of red.

The tide turned slightly on the ASIC share price around lunch, slipping below the opening price this afternoon alongside the S&P/ASX 200 index (ASX: XJO), which is down 1.1% into the red today. At the time of writing, however, AFIC shares are trading steady at around $8.36.

Man drinking from a bottle sitting on a floating ring in the middle of a harbour going nowhere.

Image source: Getty Images

What's up with the AFIC share price today?

Firstly, there is no market-sensitive information for the company today that is likely to impact the AFIC share price. So we can rule that out.

However, in view of the broader market selloff today, it's important to realise some of the mechanics behind the market's psychology, in order to explain why AFIC hasn't slumped with the broader market today.

In times where risk, volatility and market uncertainty are high, investors tend to display a herd-like behaviour where they shift capital from risker investments into 'safer', more conservative ones.

This is called a 'flight to quality', and may occur within the same type of investment, or across different asset classes in times of financial market turbulence.

When talking about the share market in these instances, investors generally define risk as high volatility or fluctuations in price.

On this basis, the flight to quality involves shares that have low historical volatility, when looking in the rearview mirror.

The historical volatility of a share is measured using a fancy term called standard deviation – but there is a much easier way for Foolish investors to see this for themselves.

One easy way to examine this is to simply check a company's share price chart, and see the style of the price line.

If it looks like a hyperactive 2-year-old drew it – with high peaks and low troughs – this is what high volatility looks like.

Conversely, a stable, gradually increasing line indicates the opposite scenario.

Looking at AFIC's chart, it doesn't take a rocket scientist to see that its volatility has been low this past 12 months.

Compare this to Afterpay Ltd (ASX: APT)'s share price over this same time, and one clearly see's the difference.

How AFIC share price volatility compares to Afterpay

Data: Google FinanceGoogle and the Google logo are registered trademarks of Google LLC, used with permission

Hence, investors who want to take some risk off the table as market uncertainty grows, are likely to seek out shares such as AFIC, in a flight to quality, to help preserve capital.

What else could be at play?

Another factor to consider is that AFIC is a diversified investment company.

And one way that investors tend to reduce their investment risk is to diversify their portfolio – not keep all their eggs in one basket.

Given that AFIC has a high number of investments in the local share market, it offers investors a diversified way of staying invested in ASX shares.

Except they can achieve this benefit by owning one share – AFIC – instead of purchasing a bunch of individual shares at who knows what prices.

This increases the popularity of shares like AFIC in times of market uncertainty, as it offers investors a way to hedge their bets, and diversify their investment portfolio.

That way investors aren't left catching the falling knife if a basket of shares begins to crash – as in today's example – they can simply sell their AFIC shares instead, no dramas.

In a nutshell, AFIC shareholders gain access to the returns offered by a whole range of ASX shares but get to reduce their risk at the same time, because they aren't holding the shares individually.

There's a bit of a cap on the total return (as one trades some reward in exchange for lower risk), but that's still a pretty attractive scenario for large institutions and investors with millions/billions of dollars at stake.

AFIC share price snapshot

It hasn't been a terrible year for the AFIC share price, which posted a gain of 14.5% since January 1.

This extends its climb over the past 12 months to almost 33%. Both of these results are well ahead of the broad index's return of around 25% in the last year.

The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Financial Shares

a couple consider the advice from a man with documents laid out on a table and the man holding a tablet in his hand.
Financial Shares

3 ASX 200 financial shares to sell: experts

ASX 200 financial shares are down 2.5% over six months and up 2.1% in 2026-to-date.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Financial Shares

Perpetual shares slip after update. But there's more going on beneath the surface

Perpetual shares ease after an update shows mixed numbers across key divisions.

Read more »

A hipster-looking man with bushy beard and multiple arm tattoos sits on the floor against a sofa reading a tablet with his hand on his chin as though he is deep in thought.
Financial Shares

Qube Holdings wins ASX waiver for flexible scheme timetable and dividend

Qube wins ASX waiver for flexible scheme timetable, potentially paving the way for a special fully franked dividend if its…

Read more »

young woman reviewing financial reports at desk with multiple computer screens
Financial Shares

Perpetual provides Q3 FY26 update: reveals AUM decline, Corporate Trust growth

Perpetual's Q3 FY26 update shows AUM decline, steady Corporate Trust growth, and completion plans for the Wealth Management sale.

Read more »

a man in a business suite throws his arms open wide above his head and raises his face with his mouth open in celebration in front of a background of an illuminated board tracking stock market movements.
Financial Shares

Why is everyone buying Macquarie shares?

Strong growth and resilience are driving demand for the shares.

Read more »

Financial advisor on phone and looking at computer whilst eating and holding coffee.
Financial Shares

After a brutal 2026, this $1.5 billion ASX financial stock is pushing higher again

MA Financial shares move higher, but questions remain.

Read more »

A happy elderly couple enjoy a cuppa outdoors as the woman looks through binoculars.
Financial Shares

Why are Challenger shares falling today?

Sustained fund outflows are placing downward pressure on earnings.

Read more »

A couple sit in their home looking at a phone screen as if discussing a financial matter.
Financial Shares

Challenger plans 2026 redemption of Capital Notes 3 with final distribution

Challenger will redeem all Challenger Capital Notes 3 in May 2026, with a final $1.47 per note distribution for registered…

Read more »