Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Register

9 April 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

Want your loved ones to inherit your super? You can’t afford to skip this one step

One in five Australians die before retirement and most have not set up their super properly so their loved ones can benefit from all their hard work and savings. 

Indexation implications – key changes to 2026/27 super thresholds

Stay on top of the latest changes to superannuation rates and thresholds for 2026, including increases to transfer balance cap, concessional contributions cap, and non-concessional contributions cap.

Super is catching up, but ageing is a triple-threat

An ageing Australia is shifting the superannuation system’s focus from accumulation to the lifecycle of retirement. While these pressures have been anticipated for decades, they are now converging at scale and driving widespread industry change.

Has Australia wasted the last 30 years?

The 20 years after Peter Costello left Treasury have been deemed wasted...by Peter Costello. The missed opportunities for Australia began long before.  

The refinery problem: A different kind of energy crisis in 2026

The Strait of Hormuz closure due to US-Iran conflict severely disrupted global energy supply chains. While various emergency measures mitigated the crude impact, the refined product market faces unprecedented stress.

3 ways to defuse intergenerational anger

With the upcoming budget increasingly likely to include bold proposals to alter the tax code I’ve outlined three incremental steps with fewer unintended consequences.

Latest Updates

Investment strategies

War can’t be good, can it?

War brings immense human suffering and geopolitical chaos, but historically, equity markets have shown a certain detachment and resilience amid conflict, leading to increased profitability despite initial panic.

Property

Origins of the mislabeled capital gains tax ‘discount’

Debate over the CGT discount is intensifying amid concerns about intergenerational equity and housing affordability. This analysis shows that the 'discount' does not necessarily favor property investors.

Superannuation

Div 296 may mean your estate pays tax on assets your beneficiaries never receive

The new super tax, applying from 1 July, introduces more than just a higher rate on large balances. It brings into focus a misalignment between where wealth sits and where the tax on that wealth ultimately falls.

Investment strategies

There’s more to software than just code

AI-driven fears of collapsing software moats has triggered indiscriminate sell-offs. This has created mispricing opportunities as markets overreact to uncertainty and rising discount rates.

Economics

Europe: A new growth trajectory powered by reform and investment

Europe is undergoing a major transformation driven by security threats, US pressure, and a shift from austerity to growth. EU member states are taking proactive measures to enhance competitiveness and resilience.

Investment strategies

Orbital AI data centers prepare for launch

The new space race is driven by AI as data centers in space offer continuous solar power and reduced environmental impact. Orbital AI aims to speed data processing and ease Earth's resource strains.

Retirement

Little‑known government scheme can help retirees tap into $3 trillion of housing wealth

The Home Equity Access Scheme in Australia allows older homeowners to tap into their home equity for retirement income, yet remains underused due to lack of awareness and its perceived complexity.

Sponsors

Alliances

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.