Join our investing community

Understanding LIC fee structures

Discussion in 'Listed Investment Companies (LIC) and Trusts (LIT)' started by twisted strategies, 24th Nov, 2016.

  1. twisted strategies

    twisted strategies Well-Known Member

    3rd Nov, 2013
    by Nathan Umapathy on November 24, 2016 0

    Nearly 60% of the Listed Investment Companies (LICs) in our coverage have delivered strong benchmark outperformance over the past decade, and LICs still look compelling as part of an investment portfolio.

    Fees are part and parcel of any investment vehicle, including LICs, and can significantly affect real value, so they are always important. This article examines the costs associated with LICs and why some managers have higher fee structures than the average.

    Types of fees

    Fees and expenses generally take three forms:

    • management fees
    • administration fees
    • performance fees.
    Management fees seek to recover general day-to-day expenditure of the investment process. Traditionally, management fees range between 0%-2% of total cost, within the LICs in our coverage. Administration fees incorporate all other expenses incurred in the fund’s management such as director’s fees, rent, audit, and legal. These fees are charged regardless of performance and may vary considerably depending on the fund manager’s investment mandate, style and approach.

    Performance fees seek to directly align the profitability of the manager and the performance of the underlying fund. A performance fee is best described as a reward for performing above the fund’s stated benchmark. Typically, performance fees range between 10%-20% of the value above the benchmark, and as an investor you need to consider the performance fee’s structure and whether you think it’s fair and aligns the interests between the portfolio manager and investor.

    While lower fees do not guarantee superior performance, they are less of an impediment on returns. In fact, many of the higher fee mandates operate in less-efficient sections of the market and often outperform the market, i.e. smaller caps mandate LICs.

    Indirect Cost Ratio = Indirect Cost/Average Pre-Tax NTA

    The Indirect Cost Ratio (ICR) is the aggregation of indirect costs divided by the average pre-tax net tangible asset for the year and presented as a percentage. Indirect costs generally include management fees, performance fees, legal, accounting, auditing and other operational and compliance costs. Throughout our coverage, we produce both the ICRs with and without performance fees.

    Understanding LIC fee structures - Cuffelinks

    link to the much larger article

    Nathan Umapathy is Research Analyst at Bell Potter Securities. This article has been prepared without consideration of any specific person’s investment objectives, financial situation or needs and there is no responsibility to inform of any matter that subsequently may affect any of the information. For the latest Bell Potter Quarterly Report and NTA updates, click here.

    courtesty of Cuffelinks

    ( disclosure i hold BFG shares )

    i hold WAX ( free-carried ) CAM , CDM , BKI , OZG ,WIC , of those mentioned in the article


    an education subject by itself investing in LICs ,not the easy 'no-brainer' novice investments they seem , but they do try to resist total collapse harder than some companies , so they do have their place .

    always DYOR)
    trinity168 likes this.