Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Register

5 November 2025

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

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Latest Updates

Investment strategies

LICs vs ETFs – which perform best?

With investor sentiment shifting and ETFs surging ahead, we pit Australia’s biggest LICs against their ETF rivals to see which delivers better returns over the short and long term. The results are revealing.

Retirement

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

The ASX is full of broken blue chips

Investing in the ASX 20 or 200 requires vigilance. Blue chips aren’t immune to failure, and the old belief that you can simply hold them forever is outdated. 

Shares

Buying Guzman y Gomez, and not just for the burritos

Adding high-quality compounders at attractive valuations is difficult in an efficient market. However, during the volatile FY25 reporting season, an opportunity arose to increase a position in Mexican fast-food chain GYG.

Investment strategies

Factor investing and how to use ETFs to your advantage

Factor-based ETFs are bridging the gap between active and passive investing, giving investors low-cost access to proven drivers of long-term returns such as quality, value, momentum and dividend yield. 

Strategy

Engineers vs lawyers: the US-China divide that will shape this century

In Breakneck, Dan Wang contrasts China’s “engineering state” with America’s “lawyerly society,” showing how these mindsets drive innovation, dysfunction, and reshape global power amid rising rivalry. 

Retirement

18 rules for ageing well

The rules to age successfully include, 'the unexamined life lasts longer', 'change no more than one-eighth of your life at a time', 'nobody is thinking about you', and 'pursue virtue but don’t sweat it'.

Sponsors

Alliances

Site Map

About Firstlinks

© 2025 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.