The Australian Foundation Investment Co Ltd (ASX: AFI) (AFIC) share price looks like a buy, in my opinion. The company looks excellent value in my eyes.
AFIC is a listed investment company (LIC) that has been operating for around a century, investing in other shares to make money for shareholders.
Many investors are attracted to exchange-traded funds (ETFs) because of the diversification and ability to buy all of the underlying shares at once. ETFs normally have a low cost, which is a good feature too.
For several reasons, I’d prefer to invest in the LIC at the current AFIC share price rather than an ETF like the Vanguard Australian Shares Index ETF (ASX: VAS) and BetaShares Australia 200 ETF (ASX: A200).
NTA discount
One of the interesting things about LICs is that they can trade at a cheaper price, or more expensive price, than their underlying value. For example, if we think of the LIC as a basket of shares, the value of the individual shares in that basket could come to $1, but the actual basket may be priced at $0.90 o the ASX (a 10% discount). A different LIC may have its basket priced at $1.10 on the ASX (a 10% premium to $1).
ETFs are always priced at the same value as their underlying value. A $1 ETF basket will cost $1.
Being able to buy LICs at cheaper value than their basket – called the net tangible assets (NTA) – is appealing. We can get a bargain.
AFIC tells investors what its NTA is each week, giving investors an understanding of what value they’re getting.
At the time of writing, the AFIC share price is $7.45, while the latest weekly NTA update showed AFIC’s pre-tax NTA was $8.32 on 18 October 2024. That’s a discount of approximately 10%, which is as good as I’ve seen during my investing career.
Diversification
AFICs portfolio does not directly mirror the ASX 200 (ASX: XJO), but it does own plenty of the same sorts of names, though in smaller weightings. For example, ANZ Group Holdings Ltd (ASX: ANZ) was only 2.2% of the portfolio at the end of September 2024.
It owns dozens of investments and some its ‘active’ positions include James Hardie Industries plc (ASX: JHX), CAR Group Limited (ASX: CAR), ARB Corporation Ltd (ASX: ARB) and Reece Ltd (ASX: REH).
I think AFIC has found a good mix of ASX large caps and growing mid-caps in its portfolio.
Low costs
AFIC prides itself by having one of the lowest costs in the LIC sector, which are so low that they’re comparable to ETF costs.
The LIC’s management fee is 0.15%, with no additional fees (including no perfomance fees). That’s appealing considering AFIC does outperform the ASX share market over some time periods.
Final thoughts on the AFIC share price
I think this is a good time to invest in this LIC at a large discount, while it can also provide an appealing level of consistent dividends (which are growing again). It has a dividend yield of 5% when the franking credits are included.
