Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Register

11 September 2026

Home / 242

A checklist for buying LICs at a discount

As a rational value investor, it makes sense to buy an asset at a price less than the tangible value of the asset with an expectation that over time, the value will be realised. Listed Investment Companies (LICs) trading at discounts to their net tangible assets per share (NTA) may present a value opportunity but if these discounts persist over time, then this value may never be released. Some LICs remain at a discount to their NTA for years.

Here is a very simple illustration of a discount and premium to NTA.

You have $10,000 to invest in the stock market and you’ve decided to use a LIC to gain exposure to a particular equities strategy.

LIC opportunity 1 with discount to NTA

LIC 1 offers a basket of listed stocks, and 10,000 shares with an underlying market value of $10,000 and NTA of $1 per share are available for a 10% discount of 90 cents. You pay $9,000 for $10,000 worth of underlying stocks.

LIC opportunity 2 with premium to NTA

LIC 2 offers a basket of listed stocks, and 10,000 shares with an underlying market value of $10,000 and NTA of $1 per share are available for a 10% premium of $1.10. You pay $11,000 for $10,000 worth of underlying stocks.

What causes this disparity?

These differences occur despite the NTA being readily identifiable from the issuer’s website or ASX announcements.

For example, a LIC premium to NTA can exist when there is a lot of demand for the LIC for various reasons, or if the company is issuing more shares at a price greater than the NTA. However, if there is little demand for a LIC, selling activity can place downward pressure on the share price causing it to trade at a discount. If a company issues more shares at a share price lower than the NTA, this can further exaggerate the discount. The management and boards of LIC need to closely watch the relationship between NTA and the price of new shares.

On first look, it seems the rational investor could take advantage of the discount opportunity, but the following is a list of the key items investors should consider to gauge whether a LIC trading at a discount could move towards trading at NTA or even a premium.

It’s not an exact science but in our view, a LIC trading at a discount exhibiting many of the positive attributes mentioned above could present an opportunity to unlock value via the narrowing of the discount over time.

 

Julia Stanistreet is a Business Development Manager at NAOS Asset Management. This content has been prepared without taking account of the objectives, financial situation or needs of any individual. It does not constitute formal advice.

 

  •   28 February 2018
  • 5
  •      
  •   
5 Comments
Ashley
February 28, 2018

Problem is most LICs tend to trade at discounts near the peak of boom markets (late dot com boom, late credit/China boom, etc) when more retail investors pluck up the courage and shift from LICs to trying to play the market themselves. The market then crashes. So discounted LICs at or near the top doesn’t help. Then in the crashes (tech wreck, GFC) LIC discounts get even wider, so if investors panic sell at the bottom, they get clobbered worse when they finally capitulate and give up at the bottom – eg early 2009 when you couldn’t even give LICs away.

Mike
March 01, 2018

I've been invested in LIC's since the start of the 1980's and its been a good way to build wealth through that period. The trick is to get a good board who are the managers.. The trouble now is that some funds are so big they need to broaden their focus to find growth because their Australian Assets are not growing. The other issue is that once your portfolio is big enough you can replicate what the LIC is doing in any event. But for people starting out I think this is great place to get a bit of diversity and safety in not having all eggs in a single basket. I think some of the board members of the LIC are charging too much for their services particularly where the portfolio does not change all that much from year to year. However, the LIC will generally follow the general market but as with all markets there are times where this becomes over or under valued and that is the point of the article.

Graeme
March 01, 2018

I would generally agree with Ashley’s assertions of LIC’s trading at discounts at market tops and bottoms, though the former is not as reliable. I disagree with his view that it is necessarily a problem. Obviously if one panic sells any stock at the bottom, you are going to do poorly. However buying LICs in 2009 meant you were going to do very well. WIL (now WAX) and PET around 50c, CDM and MFF around 60c were a major factor in my early retirement. And if you get the buying right there is often no need to sell, so discounts at tops also cease to be a problem.

Andrew
March 12, 2019

If there is a substantial discount, why doesn't the management buy back the company shares by selling off some NTA, enhancing the NTA per share for the remaining shareholders?

Graham Hand
March 12, 2019

Hi Andrew, they often do. LICs regularly run capital management programmes where they buyback their own shares at a discount. Of course, some are reluctant to do it because a smaller fund means less fees.

 

Leave a Comment:

RELATED ARTICLES

Managing LIC discounts and premiums

The catalyst for a LICs rebound

Why LIC discount harvesting is a buy-and-hold decision

Firstlinks is sponsored by:
banner

Most viewed in recent weeks

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

The investment that sidesteps the new tax traps

Tax rules have changed, but many investors are still using yesterday’s strategies. Insurance bonds may offer advantages for those seeking greater control, tax efficiency and certainty about their wealth.

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Latest Updates

Shares

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

Investment strategies

Making a case for the 40 year mortgage

The housing debate tends to focus on prices, interest rates and deposits. Yet an overlooked feature of the mortgage itself could help buyers enter the market sooner without abandoning prudent lending standards.

SMSF strategies

Red flags to watch out for when considering an SMSF

Thinking about an SMSF? Before you sign anything, learn how to spot the difference between genuine advice and a sales pitch, understand the real costs, and avoid the compliance mistakes that attract ATO attention.

Investment strategies

Not all income is created equal

Market conditions are shifting as familiar yield sources quietly lose momentum. Australian public credit may be the most compelling source of income in today's market but many investors haven't noticed the shift. 

Investment strategies

The market paid for change, not comfort

Reporting season has delivered a clear message: the market is no longer paying simply for quality, resilience or an earnings beat. It is paying for change in earnings expectations and the outlook ahead. 

Investment strategies

Will AI destroy investor capital?

Some of history's most important innovations changed the world while leaving investors much poorer. As trillions pour into AI, a familiar pattern may be emerging, one that rewards society far more generously than capital.

ASX reporting season: Signals, surprises, stock stories

August reporting season delivered strong earnings and bigger-than-expected dividends, but beneath this, a more nuanced story emerged. First Sentier Investors’ David Wilson and Christian Guerra unpack the key trends.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

Site Map

About Firstlinks

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.