How did the AFIC (ASX:AFI) share price manage to outperform in 2021?

Man in an office celebrates at he crosses a finish line before his colleagues.

As we’ve established here at the Motley Fool, 2021 was a decent year for ASX shares. Over the year just gone, the S&P/ASX 200 Index (ASX: XJO) managed a gain of roughly 13%. That’s not including the extra percentage points we can assume from dividend and franking returns. But how did the Australian Foundation Investment Co Ltd (ASX: AFI) go?

The year that was for the Australian Foundation Investment Company

The Australian Foundation Investment Company (or AFIC for short) is one of the oldest and most popular listed investment companies (LICs) on the ASX. It was founded way back in 1928, decades before anyone had even heard of an index fund. AFIC is designed to give its investors a broad and simple investment across the ASX share market.

It holds a large basket of close to 100 shares. The most prominent of these are mostly the blue-chip shares we all know and love. As of 30 November 2021, these included (in order of portfolio weighting) Commonwealth Bank of Australia (ASX: CBA), CSL Limited (ASX: CSL), BHP Group Ltd (ASX: BHP), Macquarie Group Ltd (ASX: MQG), and Wesfarmers Ltd (ASX: WES).

So let’s see how AFIC fared across 2021 compared to the ASX 200, and an index exchange-traded fund (ETF) that tracks the ASX 200. After all, there’s arguably not much point in investing in a company like AFIC (or by extension, any company) if it can’t beat the market’s return.

AFIC started the year off at a share price of $7.30. It finished up on New Year’s Eve at $8.46 a share. That’s a capital gain of 15.9%.

So far, so good. But we also have AFIC’s fully franked dividends to consider as well. Last year, AFIC paid out two dividends. There was a February interim paycheque of 10 cents per share, as well as the final August dividend of 14 cents per share. These 24 cents per share in dividends equate to a yield of 2.84% on AFIC’s last share price of 2021. Grossed-up with AFIC’s full franking and that yield grows to roughly 4.06%. And that pulls AFIC’s returns for 2021 up past 19%.

By comparison, the ASX 200-tracking iShares Core S&P/ASX 200 ETF (ASX: IOZ) managed a return of 17.11% for the year just gone. So AFIC was a definite market beater over 2021.

How did AFIC beat the ASX 200?

So how did this LIC manage this outperformance? Well, it’s likely that it mostly comes down to how AFIC held different shares from the ASX 200 in 2021, and in different weightings. You can see how those top 5 holdings listed above differ from the ASX 200’s, which includes National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC), for example.

So no doubt AFIC shareholders will be pleased with the year they’ve just enjoyed from this LIC. Let’s see if it can offer a repeat performance in 2022.

At the current AFIC share price of $8.62 (at the time of writing), this LIC has a market capitalisation of $10.5 billion, with a trailing dividend yield of 2.8%.

The post How did the AFIC (ASX:AFI) share price manage to outperform in 2021? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen owns National Australia Bank Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended CSL Ltd. The Motley Fool Australia owns and has recommended Wesfarmers Limited. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. 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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