The Australian Foundation Investment Co. Ltd (ASX: AFI) share price has had a pretty good start to this week's trading session. At the time of writing, Australian Foundation Investment Co (AFIC for short) shares are up a healthy 0.48% at $8.39 a share. That's slightly underneath the S&P/ASX 200 Index (ASX: XJO), which is currently up 0.54%.
2021 has been kind to AFIC shares as well. Year to date so far, this Listed Investment Company (LIC) is up 15%, besting the ASX 200, which has gained a still-impressive 12% year to date. But now that we are nearly through with 2021, what should investors watch out for in 2022 with their AFIC shares?
What does 2022 hold for AFIC shares?
Well, let's take a look at AFIC's portfolio to start with and see what we see.
So AFIC has recently released its 'Top 25 Investments' list for its portfolio as of 30 November. It tells us that AFIC's top holdings are as follows:
- Commonwealth Bank of Australia (ASX: CBA)
- CSL Limited (ASX: CSL)
- BHP Group Ltd (ASX: BHP)
- Macquarie Group Ltd (ASX: MQG)
- Wesfarmers Ltd (ASX: WES)
Following these 5 shares, we have Transurban Group (ASX: TCL), Westpac Banking Corp (ASX: WBC), and National Australia Bank Ltd. (ASX: NAB).
So as you can see, AFIC's top holdings are not too different to those of the ASX 200. So if we want to plot AFIC's potential course through 2022, we need to start with these shares. And since they are not too different to the ASX 200's, we can say that whatever the ASX 200 does next year will likely determine how AFIC shares perform overall.
But remember, AFIC also has a small international shares portfolio that we discussed a few months ago. AFIC doesn't tell us which of these shares it holds month to month. But as of its FY2021 annual report, it included Apple Inc (NASDAQ: AAPL), Amazon.com, Inc. (NASDAQ: AMZN), Mastercard Inc (NYSE: MA), McDonald's Corp (NYSE: MCD), PayPal Holdings Inc (NASDAQ: PYPL), Netflix Inc (NASDAQ: NFLX) and Starbucks Corporation (NASDAQ: SBUX). These shares likely remain a small part of AFIC's portfolio. But they could still give this LIC an edge if these companies enjoy a lucrative 2022.
Don't forget about the NTA
The final factor to mention is AFIC's present share price premium to its underlying assets. The company tells us that its net tangible assets (NTA) per share was $7.55 as of 30 November. Since AFIC shares closed at $8.25 each on 30 November and are currently asking for $8.39, we can conclude that AFIC shares are trading at a significant premium to their underlying value right now (around 10%).
It's likely that for AFIC shareholders, this premium will need to be maintained for AFIC to at least match the ASX 200's returns. Say if the ASX 200 and AFIC's share portfolio hypothetically both return 10% in 2022. If AFIC's NTA premium falls away and AFIC's share price returns to its NTA, its share price could go nowhere.
So we don't yet know how the AFIC share price will go in 2022. But how the ASX 200 itself fares next year will give us a good indication of how AFIC shares will perform.
