The listed investment company (LIC) Australian Foundation Investment Co Ltd (ASX: AFI) has seen its share of volatility. As the chart below shows, AFIC shares have seen two noticeable drops in recent times.
The most recent one was seemingly caused by the LIC going ex-dividend. That means if any new investors try to buy shares on or after the ex-dividend date, they won't be entitled to the upcoming dividend. Therefore, AFIC shares were worth more before the ex-dividend date because investors were entitled to the payout then but not now.
The AFIC share price decline that started at the beginning of February may have been caused by overall geopolitical and economic worries, such as concerns about the US tariffs on China, Mexico, and Canada. But, this could be a good time to invest.
Let's examine several reasons why the ASX share could be a potential opportunity.
Diversification at a low cost
One of the most effective tools an investor can use in times of uncertainty is diversification. Investors can get instant diversification by investing in a portfolio-style investment like LICs, such as the Australian Foundation Investment Co Ltd, or an exchange-traded fund (ETF), such as the Vanguard MSCI Index International Shares ETF (ASX: VGS).
The AFIC portfolio allows investors to gain access to a group of ASX blue-chip shares, such as Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), CSL Ltd (ASX: CSL), and Macquarie Group Ltd (ASX: MQG).
It would cost a lot in brokerage to go and buy all of those shares ourselves.
AFIC also has very low management costs. Pleasingly, owners of AFIC shares are only charged 0.15%, which is very low in my opinion. This helps the overall net returns stay close to the gross returns.
Solid returns
The main goal of investing is to make returns. AFIC's returns have been solid, and its performance has been fairly similar to the overall share market. Sometimes, it's capable of beating the market, though it doesn't charge outperformance fees when it does.
In the latest monthly update, for February 2025, AFIC said that over the prior five years, its net asset per share growth plus dividends (including franking credits) has been an average of 10.1% per annum compared to a net return of 10.3% per annum for the S&P/ASX 200 Accumulation Index (ASX: XAOA), including franking credits.
Despite the solid performance, the AFIC share price is currently trading at a 10% discount to the pre-tax net tangible assets (NTA) of $8.04 at 28 February 2025.
Good dividend
One of the main advantages of the listed investment company structure is that the board of directors decide on what level of payout they want to do.
Owners of AFIC shares have received a very consistent level of dividends this century, and the LIC has recently increased its payouts again.
The last two declared dividends amount to a grossed-up dividend yield of 5.2%, including franking credits. That's a pleasing level of passive income, considering it can also grow over time.
