A weakness of structure as well
No doubt the discounts in the sector say as much about the weakness of some LIC and LIT structures as the fund itself, as the only liquidity comes from finding a buyer on the market. It should also be acknowledged that some LICs trade at a premium and benefit from active marketing by their managers or good economies of scale.
But there’s no way to gloss over it. Billions of dollars were invested in the best names in Australian funds management, every investment originally costing NTA (or worse if fees were involved), and now most of the issues trade at a discount.
And there is a residual adverse impact from the commissions paid to brokers and advisers to place LICs and LITs, which have now been banned. The reputation of the structures took a hit when some massive transactions traded at a wide discount, and investor trust is slow to return.
It's one reason why some managers are moving into active exchange-traded funds (ETFs), where there is an in-built market-making function which ensures trading close to the NTA value.
Perhaps it needs a major consolidation where the big funds take over the minnows. It might be better from the investor's perspective to turn some funds into unlisted vehicles in an open-ended vehicle which trades at NTA, or an active ETF, as long as managers are willing to face redemptions. Ouch! Less funds under management means less fees.
