Tony Kynaston - A Look at LICs

ETFs are the talk of the town but LICs are another way of gaining exposure to a basket of shares with a single trade. Tony Kynaston from the QAV Investing Podcast (an SFB recommended podcast to learn more from) joined us to explain LICs and how to use them as part of a diversified portfolio.

What's the difference between an LIC and an ETF?

An LIC starts with a fixed amount of money. The manager then invests that fixed amount of money in a basket of shares according to their investment thesis. That amount of money, or capital invested, doesn't change when someone buys or sells a share. In the case of an ETF, every time someone buys or sells units in that ETF, the manager buys or sells the shares that make up that ETF.

Gold ETFs are a good example. Some of them are backed by physical gold that sits in a vault in London. As more investors buy units, more gold is shovelled into that vault. When investors sell, the gold is removed from the vault.

This is why LICs are referred to as closed funds, while ETFs known as open funds.

The Big 3 Australian LICs - AFIC, ARGO & Milton. We also discussed Wilson Asset Management's LICS, FGX (another Wilson Fund) and Hearts & Minds

Finding value by buying LICs at a discount. Tony uses the Morningstar Monthly LIC Report to find LICs at bargain prices.

Tony's investing ladder - 4 steps for starting out in the investing market:

• Step 1: Invest in index funds whether ETFs or LICs
• Step 2: Look for discounted LICs - this is when an LIC is trading at a lower price than it's Net Asset Value (NAV).  Helps you to learn how to value a company.
• Step 3: Create your own index fund by buying the top 20 stocks - 70% of the market weight of the ASX 200 is in the top 20 stocks so ne need to buy all 200. 

Here's a link to a list of those top 20 shares.

• Step 4: Start to take an opinion on which of those stocks is going to go up and only buy those.

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Shares for Beginners is for information and educational purposes only. It isn’t financial advice, and you shouldn’t buy or sell any investments based on what you’ve heard here. Any opinion or commentary is the view of the speaker only not Shares for Beginners. This podcast doesn’t replace professional advice regarding your personal financial needs, circumstances or current situation.