Firstly let me explain the facts of an LIC. As I understand it...

Firstly let me explain the facts of an LIC. As I understand it the index assumes there is never a CGT event. Its made up of share prices and the accumulation index adds dividends into it. I presume the latter assumes the dividends are re-invested in the index. Now flip to a real life LIC - It buys stocks and always assumes it would reap the rewards and then sell them - In their scenario they pay the tax and distribute franked dividends. A managed fund is different and distributes its income and the holder gets the income and the deductions ( Excluding net capital losses) and pays the tax thereon. What I am not sure of is whether the managed fund is able to say for example keep any of its capital gains. Even though the holder would be responsible for tax on that. Given Australia's and other countries retirement tax laws often the product appeals to different stages of your life.

So in the case of an LIC its very hard to beat the index if in general the market is in a bull phase. A high tide raises all ships even the ones with small leaks. The LIC has to pay the capital gains tax of 30% and beat the index. In the "Good Ole" days they did beat the index as they probably had a great insight into research and could beat the general index. Today they find it very hard. Everyone knows the best investment would be one where you don't have to sell it. That way the profits and income are not being raided by the ATO. That truly isn't possible given the nature of the world today. Some would say you buy the largest successful companies and leave them to do the portfolio changes you would like to make. In some ways I think that is why so many people buy Berkshire Hathaway - Its simple no dividends only retained income and hopefully higher share prices. If you need cash you sell a portion of your holding. So in this constantly changing process how can you actually expect LIC's to beat the market? I don't think you can but you can invest in them if the get to achieve a return you expect over the long term. We have set our required rate of overall income at 4% ( Distributions) and probably around 6% including the market gains. We hold this stock only because we paid a very much lower price for our units and in fact realized that it pays out ( our opinion) far too much in dividends but as they are fully franked they are fine for us. We expect the price to decline and at some point we will maybe reach a point at which selling makes sense. Right now we think no-one knows where the world is headed so sitting and watching seems appropriate.

THIS IS NOT ADVICE JUST WHAT A COUPLE OF INVESTORS THINK WHO TALK. We are always wrong much like the BOM. Even Wilsons get it wrong on public forums - There is a you tube presentation around a year ago in which they punted SHV - oops ... We all have these. No-one can predict the future.