Tony Kynaston - What's an LIC?


Remember from previous episode now in discussions we started talking about. Tony is a big fan of villas. Get i- tiny going. I feel i realized we haven't spoken much about lic's which are listed investment companies. And we've had plenty of listeners. Ask what is l. c. So let's get started and talk about what's the difference between an atf and lic. They both traded on the stock exchange and both basically fund and and so there's different types of funds as index funds. There's managed funds. There's people who are trying to beat. The market with particular funds niche funds investing in property or gold. Or whatever so you can basically by each year for us investment company to suit. Whatever you're trying to do the reason that there's a big difference between atf's lic's in that in the side. When the fund manager launched the wasted investment company they raised money beforehand. And they don't add to that money as you bind so shares in the company that money stays invested in it and it grows all drops according to how they invest on the atf. Side they wrist on the share market. But then every time. Someone buys a share. They're adding to the phone. That's invested and every time they sell a share. The fund manager has to sell some underlying assets and pay out the person who's exiting. Let's look at the gold atf. I think we started talking about this a while ago. But the gold. Atf when you buy unit in gold atf. There's vault in london and someone's shoveling bit more golf into it in most cases in some cases and then when you sell your units in the atf. That little bit of goal gets taken out of that vibrant. Yeah that's how it should work. That's that's an open name. That's how an open ended here and there's another complication that some people don't voronin the physical asset of gold but the atf owns futures on the london metal exchange or something similar which track the goal process inside. Don't don't be fooled into thinking that you're actually buying gold if you're invested in what's called a synthetic atf. You'll you'll buying the trading of options and futures on on the medals exchange began bit complex shot to however that does speak to the point that someone who's looking at buying anything. Atf say whatever exactly what is being invested in correct feel safe about one way of doing something but not the other correct and so. You're getting back to the difference. Oh listed investment companies closed funds and atf's funds and. i think there's a risk in kiev. Which i don't think it's been highlighted in the market and i'm not saying it's going to be a catastrophic risk but you need to know about this before before you put your money into it and that is that like i said before the atf's if you want to sell you. Shares have to sell shares site and index fund index at bullet. Let's say it's an eight six two hundred eighty s the most common one that we would be talking about and they're going to earn the top two hundred shares on the australian stock exchange in proportion to how they appear rectum. And that's how he makes fun work so they hold the basket shares and again bear in mind. Don the younger launches they earn options futures on the asx two hundred as a number. I didn't realize so that bears synthetic and there's the other salt which actually own the shares underneath. And i think the risk in that kind of structure is that it's great when it's going up because if i if i by sharing that two hundred eighty if they'll often buy some shares and php an old bawd today's in reaon banks and that that's how they use my money but then if say so the market turns down which will does and say it. Drops precipitously twenty twenty five percent of other people who are invested in those funds are gonna get nervous and again to sell their shares that. Etf the way that the manager of that etf can get money back to you. As if they sell the underlying shares and bhp in the banks and the other members of the two hundred. So you get this feedback loop where hp in the banks dropping anyway. But then there's even more pressure because the index eight years have to sell be in the banks to fund the person leaving the fund that's different though hell listed investment company works so listen investment companies. What's called the close found. So if they fought with one hundred million dollars per one hundred million dollars invested and if the market drops twenty five percent and the fund. Manager the sarge roy there. It's as if i want to sell my share on the find the buyer on the market. He wants to buy off me said just that one unit of the correct investment company so it's the shares which traded and not the underlying assets. Yeah yeah so. That's the probably the biggest difference between. Atf's send lucid investment companies. There is another dimension of investment companies which occurs because of that nature. And that is that i can buy. Shares in the lic for more or less than what. the underlying fund is worth and that gets reported every month on the six all of the all those investment companies have to tell the asx what the mta the net tangible assets which is basically what the value of all their investments worth and if it's a fund of shares. That's pretty easy to do. Because i just at the end of the month also will this much. Hp found it's worth as much and semi fund is worth x. Dollars divided by number shares on issue my funds with adult on my my interiors. All but in some instances i can go on by the investment company at ninety cents on the dollar or it could be asked to to buy the door twenty when it's worth a dollar so one thing to be aware of with us an investment companies. What their interiors. And it's readily available boggling. You can just look at that. That's very easy to the others. But that's a great opportunity if you're on a share market investor and you want us to dp toe into doing it yourself is every month you can. Google listed investment company reports. I'm morningstar has one and it will tell you what the is the end of last month. And what the share price was and whether llc's trading above or below its value and being an invest royal was one of the pilots. And we'll i think something's worth and so from time to time i'll think what so. Listen investment company. That's it's going to be around for a long time in trust the management and at selling you the discount bossom and when it tries out to. It's this can thrive rich. This can't sell it. And that's kind of a nice way to get into the market as an investor because you're doing evaluation. What's being done for you quite easily in the report. But you learning to say okay. I can actually buy dollars. Worth investments for eighty cents or seventy cents or ninety cents and white to what gets up to a dollar will sell the money and there's all sorts of different kinds of. Aren't they. There are the not necessarily just going to be buying one philosophy across range of lic nowadays lots.

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