The largest listed investment company (LIC), Australian Foundation Investment Co. Ltd (ASX: AFI), has billions of dollars invested in S&P/ASX 200 Index (ASX: XJO) shares.
AFIC's investment style is to buy shares in listed companies and hold them for the medium to long-term. It aims to reduce costs with minimal transacting, generating "sound, tax-efficient, long-term returns." AFIC does not seek to trade business cycles.
By combining the benefits of investing in quality companies with diversification, the AFIC investment process seeks to produce attractive returns with lower volatility.
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What counts as quality for AFIC?
AFIC says that it looks for ASX shares that are in attractively structured industries with unique, high-quality assets, brands and/or business footprints that can withstand the business cycles.
It looks for company leadership strength, with disciplined financial metrics covering returns on investment, profit margins, cash flow and gearing. The AFIC view is that those businesses will generate superior returns over the long term.
What ASX 200 shares does the LIC own?
AFIC has a diversified portfolio of many names. However, on 28 February 2022, there were nine positions where it had more than $250 million invested in each holding:
Commonwealth Bank of Australia (ASX: CBA) was 8.6% of the portfolio, with $738.3 million allocated.
BHP Group Ltd (ASX: BHP) was 7.5% of the portfolio, with $649.8 million allocated.
CSL Limited (ASX: CSL) was 7.2% of the portfolio, with $616.5 million allocated.
Macquarie Group Ltd (ASX: MQG) was 4.6% of the portfolio, with $398.9 million allocated.
Transurban Group (ASX: TCL) was 4.2% of the portfolio, with $365.4 million allocated.
Wesfarmers Ltd (ASX: WES) was 4.1% of the portfolio, with $355.3 million allocated.
Westpac Banking Corp (ASX: WBC) was also 4.1% of the portfolio, with $354.6 million allocated.
National Australia Bank Ltd. (ASX: NAB) was 3.7% of the portfolio, with a $322.8 million allocation.
Woolworths Group Ltd (ASX: WOW) was 3% of the portfolio, with $254.6 million allocated.
As readers can see, these are very large bets on the nine different ASX 200 shares, demonstrating investment confidence by AFIC.
Recent AFIC investments
While the above businesses are the current holdings, AFIC's most recent investments may indicate where it has recently seen long-term value.
Four of the ASX shares it has invested in recently include CSL, Transurban, JB Hi-Fi Limited (ASX: JBH) and Coles Group Ltd (ASX: COL).
AFIC thinks that Transurban has a good track record of allocating capital, which has driven long-term free cash flow higher. The LIC is expecting a recovery for Transurban in FY23. The toll road operator also has an attractive pipeline of potential opportunities, according to AFIC.
Another ASX 200 share that AFIC has recently invested in is CSL, a huge biotechnology business that specialises in the treatment of rare diseases and influenza. AFIC likes CSL's track record of achieving growth while investing around 10% of global sales into research and development. AFIC is also a fan of the Vifor Pharma acquisition, which is a new growth area for CSL treating kidney disease and iron therapy.
