The S&P/ASX 200 Index (ASX: XJO) has dramatically recovered from its early losses this morning and has closed in the green, up 0.35% to 7,273 points. Despite this recovery, the Australian Foundation Investment Co Ltd (ASX: AFI) share price, or AFIC for short, remains in the red.
AFIC shares finished at $8.30 each, down 1.07% for the day.
This is rather strange since, as a Listed Investment Company (LIC), AFIC’s portfolio is quite similar to the ASX 200’s own holdings.
To illustrate, here are AFIC’s top 10 ASX holdings, as of 31 August:
- Commonwealth Bank of Australia (ASX: CBA)
- CSL Limited (ASX: CSL)
- BHP Group Ltd (ASX: BHP)
- Wesfarmers Ltd (ASX: WES)
- Westpac Banking Corp (ASX: WBC)
- Macquarie Group Ltd (ASX: MQG)
- Transurban Group (ASX: TCL)
- National Australia Bank Ltd (ASX: NAB)
- Woolworths Group Ltd (ASX: WOW)
- James Hardie Industries plc (ASX: JHX)
That list almost exactly mirrors the ASX 200’s current lineup. The only exceptions are Telstra Corporation Ltd (ASX: TLS) instead of James Hardie and Australia and New Zealand Banking Group Ltd (ASX: ANZ) in place of Transurban.
AFIC’s August NTA reveals a share price premium
So let’s check out what’s going on here. We’ll start with AFIC’s Net Tangible Assets (NTA). Since LICs are what’s known as a “closed-ended investment vehicle”, their market valuation can stray from the value of their underlying share portfolio. In other words, an LIC’s shares can either trade at a premium or at a discount to what they’re worth on paper.
As of 31 August, AFIC tells us that its NTA per share stands at $7.71 before tax considerations and $6.36 per share after tax.
As you can gather from the current AFIC share price, this (before tax) NTA undershoots the current AFIC share price by around 8%. This means that AFIC shares are currently trading with an 8% premium to their underlying value.
This could explain today’s share price fall in the face of the rising ASX 200. A big premium to an LIC’s NTA could conceivably give nervous investors the chance to sell out of their holdings, even in the face of a rising market.
At the current AFIC share price, this LIC has a market capitalisation of $10.16 billion and a dividend yield of 2.89%, or 4.13% grossed-up with AFIC’s full franking.
The post How does the AFIC (ASX:AFI) share price compare to its net tangible assets? appeared first on The Motley Fool Australia.
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- New Hope (ASX:NHC) share price jumps on $337m profit turnaround
- 5 things to watch on the ASX 200 on Tuesday
Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited and Telstra Corporation Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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