If I had to buy one ASX share this week it would be listed investment company (LIC) Future Generation Global Investment Co Ltd (ASX: FGG).
What is a LIC?
In most ways a LIC is just like any other company. The main difference with a LIC is that instead of selling products and services, it makes investments on behalf of shareholders.
The profit generated by a LIC comes from the capital gains (both realised and unrealised) as well as the investment income it receives. The LIC can then choose to keep all of those investment profits to grow the portfolio further, or it could decide to pay out some of that profit as a dividend.
There are some very old ASX share LICs on the ASX like Australian Foundation Investment Co.Ltd. (ASX: AFI) and Argo Investments Limited (ASX: ARG). There are also newer ones such as Future Generation Global.
A quick overview of Future Generation Global Investment Co Ltd
Future Generation Global is one of the philanthropic LICs launched by Wilson Asset Management (WAM) founder Geoff Wilson. The idea behind Future Generation is to donate money to youth charities. I think it’s a great cause. Future Generation Global invests 1% of its net assets each year to youth mental health charities.
In 2020 Future Generation Global’s donation is $5.7 million. Some of the charities it supports include: Black Dog Institute, Reachout.com, Sane Australia, Kidshelpline and Butterfly.
So what ASX shares does Future Generation Global invest in? It doesn’t actually invest in Australian shares. It invests in Australian fund managers that target international shares. Those managers work for free so that Future Generation Global can make its annual donation.
Some of the fund managers that it’s invested with are: Magellan Financial Group Ltd (ASX: MFG), Cooper, Caledonia, Paradice and Munro Partners. These are some of the best fund managers in Australia.
Recent performance update
Future Generation Global releases a monthly update. The ASX share reports how its gross portfolio return compares against the MSCI AC World Index (AUD). Over July it outperformed the benchmark by 1%, over six months it outperformed by 5%, over the previous 12 months it outperformed by 4.8% and over the past three years it outperformed by 2.1% per annum with an average annual return of 13.1%.
I think this level of outperformance is attractive, particularly as it offers such a wide level of diversification.
Why I’d buy Future Generation Global Investment this week
The ASX share is invested in multiple portfolios of businesses. I really like that you get underlying exposure to many dozens of different stocks. It has been a good defensive option during COVID-19.
I like that the Australian dollar has strengthened in recent months. That means it’s better to buy international shares such as US businesses. Right now the Australian dollar is almost at the strongest level compared to the US dollar that it has been over the past 12 months.
The Future Generation Global board recently decided to increase the full year dividend from 1.5 cents to 2 cents per share. The focus of this ASX share is capital growth, but it’s nice to see that the dividend can grow as the profit reserve gets bigger.
The value is the most important reason to consider Future Generation Global. I’m not sure what today’s pre-tax net tangible assets (NTA) per share is. But at the end of July 2020, the LIC had $1.505 of NTA per share. Compared to the pre-open Future Generation Global Investment share price of $1.29, it’s trading at an attractive 14.3% NTA discount.
Diversification, outperformance and a discount is an attractive combination in my opinion. I recently bought a parcel of shares and I’d happily do it again today.
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Motley Fool contributor Tristan Harrison owns shares of Future Generational Global Investment Company Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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