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Listed investors positive

AUSTRALIA’S listed in-vestment companies mostly defied the sharp downturn in equity markets to post positive returns last year.

In a year when the Australian sharemarket lost about 4.5 per cent, and most superannuation funds and managed equity funds also lost money, the leading LICs were a beacon of hope for cautious investors.

The largest LIC, Australian Foundation Investment Co (AFIC), produced a positive total return of 3.1 per cent (measured by the movement in net asset backing per share plus dividends paid).

This result was after income tax, management expenses and other costs.

Argo Investments and Milton Corporation, which reported their annual results last week, performed a little better, up 5.3 per cent and 8.5 per cent respectively.

As a group, the main LICs have a conservative ‘buy and hold’ investment philosophy.

They focus on building diversified share portfolios weighted toward quality blue chip stocks paying franked dividends.

The solid results achieved by the LICs were helped by their policy of investing in Australian shares. Hence, they avoided the big falls in international share values over the past two years.

This domestic bias means the LICs all have substantial holdings in the major banks.

They have also steered clear of News Corp, even though News is one of the largest companies listed on the ASX. News Corp’s low dividend yield helps to explain this policy.

AFIC’s top six investments comprise National Australia Bank, Westpac Bank, Commonwealth Bank, Wesfarmers, BHP Billiton and ANZ Bank.

Argo is a variation on the same theme. Its top six investments are National Australia Bank, Milton Corp, Macquarie Bank, Wesfarmers, ANZ Bank and Westpac Bank.

These investment portfolios may seem dull and boring to some investors.

However, the LICs have stood the test of time, consistently outperforming the broader market.

Milton, for instance, has a 10-year compound return to June 30 of 16.0 per cent per annum.

Over the same period, the All Industrial Accumulation Index gained 12.3 per cent per annum and the All Ordinaries Accumulation Index gained 10.8 per cent per annum.

Looking ahead, the LICs are on the lookout for selective buying opportunities.

“The company is well placed, with no debt and substantial cash available,” AFIC chairman Bruce Teele said.

“We are still looking for opportunities to buy quality companies as and when market setbacks provide opportunities to buy them at attractive prices.”

In a similar vein, Argo is looking to invest its cash reserves, which totalled $141 million at balance date following a rights issue.

“Taking advantage of the weak Australian share market, we have already made investment purchases of around $15 million since balance date,” Argo chair-man Chris Harris said.

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