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- 13 August 2006
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I've always been a bit of a fan of LICs and have a substantial holding in AFI and smaller holdings in ARG, DJW, SOL, OPH, and WGB. I'm not sure if the last three are technically LICs, but they behave similarly.
I've recently become interested in ETFs and it has been interesting comparing the general index ETFs with the likes of AFI and ARG.
As you'd expect, the index ETFs return very close to the accumulation index they follow. The slight underperformance would mostly be the MER charged.
What I find interesting is that the AFI and ARG underperformance of the ASX200 accumulation index over 10 years is not insignificant. It's currently around 0.7% - substantially more than their typical MER of 0.16%. You'd hope the active management of the LIC would provide some outperformance over the index, but it hasn't for some time.
My conclusion is that for core market holdings, I should be investing in ETFs, not LICs. The only time I should buy LICs in future would be when they are trading well below their NTA values (as often happens). Furthermore, I should be more of a seller of LICs at times when they are trading well above their NTA values.
I've recently become interested in ETFs and it has been interesting comparing the general index ETFs with the likes of AFI and ARG.
As you'd expect, the index ETFs return very close to the accumulation index they follow. The slight underperformance would mostly be the MER charged.
What I find interesting is that the AFI and ARG underperformance of the ASX200 accumulation index over 10 years is not insignificant. It's currently around 0.7% - substantially more than their typical MER of 0.16%. You'd hope the active management of the LIC would provide some outperformance over the index, but it hasn't for some time.
My conclusion is that for core market holdings, I should be investing in ETFs, not LICs. The only time I should buy LICs in future would be when they are trading well below their NTA values (as often happens). Furthermore, I should be more of a seller of LICs at times when they are trading well above their NTA values.