Let’s face it, who has the time to be an active investor? I’m yet to find someone from outside the banking/finance industry that can be a full-time employee while putting in the effort to properly research and manage an active portfolio.
I don’t know about you but the last thing I want to do is spend ALL of my free time pouring of complex company financial statements, meeting with management (if you get past the dreaded gatekeeper – their EA) or studying the industry to ensure your company’s product will not be another Kodak – do you remember having to go to the chemist to print off your photos?
As I value my free time so highly I’m constantly on the hunt for good listed investment companies (LIC) and one that ticks all my boxes (good dividend income, great returns and low fees) is Future Generation Investment Company Ltd (ASX: FGX).
However, before I dive into telling you how great FGX is I wanted to take a step back and explain some of the positive and negatives about LIC investments:
The Good
- LICs are closed-ended, this means that once an LIC is listed there are no cash flow pressure compared to a traditional managed fund.
- You get the benefit of active management! LICs are typically active managers in the sense that they will intentionally hold more of a stock than a normal market index, like the ASX 200. Alternately they may avoid certain industries or stocks altogether.
The Bad
- One of the most important aspects of LICs is market timing. Once listed on the ASX, an LIC cannot raise new funds without going back into the market. That means the time after IPO is critical because if the market falls it could be difficult to rebalance the portfolio without another raise.
Why I Own Future Generation LIC
Taking all this into consideration FGX is still one of my favourite holdings and a key component of my portfolio. The best part of FGX is that it charges no management or investment fees despite having access to some of Australia’s best fund managers such as Paradice and Bennelong. Instead, it donates 1% of NTA to selected charities.
Since its inception in September 2014 its portfolio has outperformed the benchmark by an average of 3.1% per year. While 3.1% might seem like a small number the compounded benefit over an extended period of time (5 – 7 years) ensures FGX would be a star in any portfolio.
Finally, as well as supporting a number of charities, one of FGX main aims is to provide shareholders a steady stream of increasing fully franked dividends. FGX has increased its dividend payout every year since 2015 and currently offers a respectable dividend yield of 5%.
Final Word
FGX has been a staple in my portfolio since 2016, mainly due to its impressive management team and the fact it provides me access to Australia fund managers at an incredibly low cost. As always I would recommend you do your own research but I’m yet to find any negative commentary around the LIC that really makes a difference in our society.
LICs V ETFs
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At the time of wrtiting, Anthony owns shares in FGX.
