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Investors eyeing off the Australian Foundation Investment Company Ltd (ASX: AFI), or AFIC for short, this September, might have some questions about what exactly they might be investing in.
AFIC is a listed investment company (LIC). This means that it doesn't really function like a normal ASX company that one might expect to find on the share market. Instead of selling goods or services, AFIC invests its capital on behalf of its shareholders, similarly to a managed fund.
AFIC is arguably ASX royalty. The company first opened its doors way back in 1928 and has been investing on behalf of its shareholders ever since.
But with the rise of the index exchange-traded fund (ETF), many investors might be wondering what an investment in AFIC represents. Well, let's dig in.
So unlike an ETF, AFIC doesn't have to blindly mirror an index. Instead, it has its own investment team that picks, chooses and actively manages a portfolio of shares. Fortunately, the compnay publishes a list of the largest shares in its portfolio every month. So let's take a look at AFIC's latest data.
So as of 31 August, AFIC's top ten holdings were as follows:
- Commonwealth Bank of Australia (ASX: CBA)
- CSL Limited (ASX: CSL)
- BHP Group Ltd (ASX: BHP)
- Transurban Group (ASX: TCL)
- Macquarie Group Ltd (ASX: MQG)
- Wesfarmers Ltd (ASX: WES)
- National Australia Bank Ltd (ASX: NAB)
- Westpac Banking Corp (ASX: WBC)
- Woolworths Group Ltd (ASX: WOW)
- Mainfreight Limited (NZE: MFT)
So many familiar names there (apart from Mainfreight, a New Zealand company). But what stands out is the subtle but important differences to the S&P/ASX 200 Index (ASX: XJO).
For example, an ASX 200 ETF would not have Transurban, Woolworths or (obviously) Mainfreight in its top ten holdings. An index fund would also have BHP in the top position, not CBA. Additionally, NAB and Westpac would occupy the fourth and fifth spots, not AFIC's seventh and eighth.
Last year, we also learnt that AFIC has initiated a small portfolio of international shares. We don't know too many details about this, except that it makes up approximately 1.1% of AFIC's overall portfolio (according to the FY22 annual report). But again, those would be assets not found on the ASX.
So that's what you're getting in a nutshell with an investment in AFIC. This LIC has managed to outperform the S&P/ASX 200 Accumulation Index over the past ten years. On AFIC's data, it has delivered an average of 11.9% per annum, versus the benchmark's 10.3% per annum.
