There are some really effective listed investment companies (LICs) on the ASX that I’d be interested in during October 2021.
I really like LICs as potential investments. The job of a LIC is simply to invest in other shares on behalf of investors. It’s a passive way to get exposure to a portfolio of businesses.
I think that LICs can be very effective way to invest in because it’s possible to buy them at a discount to the underlying value of the LIC. This is measured by the net tangible assets (NTA) per share statistic.
I think buying $1 of shares for $0.90 or $0.85 is a very attractive feature, when available.
With that in mind, here are two LICs that I like the look of:
MFF Capital Investments Ltd (ASX: MFF)
MFF Capital is one of the largest LICs around. In percentage terms, it also is one of the cheapest. Most of the costs, like management fees, are fixed. As the LIC gets bigger, the costs as a percentage of the assets decrease.
But costs aren’t the main draw card for me. It’s the portfolio manager and investment style of the LIC (as well as the current value).
Chris Mackay is very effectively managing the MFF portfolio. It’s globally focused with a long list of quality names that MFF bought at attractive value.
Some of the biggest positions include Visa, Mastercard, Amazon, Home Depot, Microsoft and Alphabet.
The fact MFF only invests when the investment is good value shows how effective the strategy is at building a good-performing portfolio for the long-term.
Looking at the current value, the MFF share price is $2.94 and the pre-tax NTA was $3.37 at 30 September 2021. That’s a discount of 13%.
I’d be happy to buy some MFF shares, which I did recently.
L1 Long Short Fund Ltd (ASX: LSF)
This is a LIC with a hybrid focus. Some of the portfolio looks for global opportunities, whilst the rest is allocated to ASX shares.
As the name of this LIC suggests, not only does it invest in shares it thinks in good value, but some of the portfolio is also allocated to shorting shares, which is essentially when the shorter is betting that the share price will go down.
Advocates of shorting would say one of the benefits of shorting is that it can protect the portfolio when the market goes down.
Past performance is not a reliable indicator of future performance, but the investment strategy has been very effective since it started. Between 2015 and 2021 (year to date) it has seen a net return of more than 25% in each year apart from 2018. The LSF LIC has seen an average net return of 21% per year over the last three years. These quoted numbers are after fees. However, don’t expect that LSF will keep being able to perform like that, but it shows that the investment team can pick stocks very well in different markets and do well even in ‘bear markets’.
It has a high number of positions, providing good diversification. There is a total of 84 positions, with 15 of those being short positions and 69 being long. Of the total, 30 of them are international positions.
The latest L1 Long Short Fund share price was $2.67, compared to the $3.08 NTA before tax at 28 September 2021. That’s a 13% discount, which is good value in my opinion.
