I think there are some very attractive listed investment companies (LICs) that could be worth buying in December 2021.
LICs are an effective way to invest in a whole group of shares through a single investment. I think they offer good diversification.
It’s also worth knowing that some LICs on the ASX trade at a cheaper valuation than the underlying assets (shares) are valued at. Essentially, you can buy a $1 basket of shares for $0.90 or even $0.80 of cash.
However, it’s important to have faith in the investment process of the fund managers in charge of the LICs.
NAOS Small Cap Opportunities Company Ltd (ASX: NSC)
This is a LIC that targets small cap ASX shares with market capitalisations of between $100 million and $1 billion.
Naos, the fund manager, operates with a number of investment beliefs – value with long-term growth, quality over quantity, invest for the long-term, ignore the index and give pure exposure to industrials.
It really does believe in investment concentration, with only nine investment positions at the end of October 2021 such as COG Financial Services Ltd (ASX: COG) and Big River Industries Ltd (ASX: BRI).
The LIC has committed to paying a growing stream of dividends for shareholders. The last 12 months of dividends amounts to a yield of 8.1% when franking credits are included.
At the current NSC share price of $0.88, it’s currently at a 21% discount to the pre-tax NTA (share basket) value of $1.11 at the end of October 2021. The NTA may have fallen since then, but I think the discount could still be very attractive.
MFF Capital Investments Ltd (ASX: MFF)
MFF Capital is one of the older, biggest and most attractive LICs on the ASX. It has low costs compared to its size, which are fixed, so it gets even cheaper as it becomes bigger.
I really respect the fund manager of MFF – Chris Mackay – who is long-term focused, considered and very effective.
The LIC finds global blue chips that are good value and have long-term return prospects. At the latest disclosure, some of the holdings were: Visa, Mastercard, Home Depot, Amazon, Alphabet, Meta Platforms (Facebook), Microsoft, CVS Health and Bank of America.
MFF also has a goal of steadily growing the dividend for shareholders. It is looking to grow the half-yearly dividend to 5 cents per share, which would take the full year dividend to 10 cents per share. That’s a dividend yield of 4.9% including franking credits.
In terms of the value, MFF shares are priced at a 13.5% discount to the pre-tax NTA at the end of November 2021, which is a price attractive enough that Chris Mackay is buying shares – I usually take that as a buy signal for MFF Capital.
