The rapid increase in listed investment company (LIC) listings on the ASX could continue, albeit with specialist companies targeting niche sectors of the market, according to the Australian Foundation Investment Company (AFIC).
Speaking to InvestorDaily in the wake of a Zenith report that said the continued growth of the sector is likely unsustainable, AFIC general manager business development and investor relations Geoff Driver said there “probably will be a few more” LICs listing in the coming years.
“It’s hard to know, but if fund managers see an opportunity to tap in to the market, then I think they’ll probably try to do it,” he said.
Mr Driver said the surge in LIC popularity likely stemmed from three factors: the changes to financial adviser remuneration structures, the rise of non-advised SMSFs and the push for greater portfolio diversity among investors.
These underlying trends are similar to those which have propelled the ETF sector, Mr Driver said, and much like the ETF sector, the LIC industry could see more companies created to target specific market segments that are currently not catered to.
“Look at the ETF market, and that’s an easier structure in some ways to implement, but there’s a whole range of different asset classes both here and internationally that they’ve looked to tackle – not just through an index fund but through different investment rules to set up their ETFs,” he said.
“I would have thought that within the LIC space there probably will be a few more, but they’ll be ones targeting very different asset classes than those we have at the moment.”
Mr Driver said there were still a large number of asset classes and investment strategies that LICs are yet to address, adding that the LIC structure offers other benefits to fund managers not available through other investment structures.
“There’s no shortage of ideas, so if fund managers think they can do that through a listed investment company then they may very well do so,” he said.
“What’s attractive to them is that there’s a set level of capital to deal with where an open ended trust has to deal with inflows and outflows that can distract from the investment philosophy.”
However, Mr Driver cautioned that “it’s difficult to tell” whether fund managers will actually look to tap in to these market segments.
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