Is the Australian Foundation Investment Co.Ltd. (ASX: AFI) share price a buy? The AFIC share price is recovering after the previous coronavirus market selloff.
It has done particularly well recently after the strong ASX bank rally. That saw AFIC shares go up 7.1% between 25 May 2020 to now.
If you haven’t heard of AFIC it’s the largest listed investment company (LIC). It has been operating for close to 100 years. The job of a LIC is to invest in other shares on behalf of their shareholders. AFIC has been doing a reliable job for decades.
What are some of the shares that AFIC is invested in?
I’m sure you recognise AFIC’s largest investments with shares like CSL Limited (ASX: CSL), Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Transurban Group (ASX: TCL) and Wesfarmers Ltd (ASX: WES). Essentially, it’s mainly invested in those large Aussie blue chips.
AFIC isn’t as invested in banks as the ASX index, which would have helped lessen the market selloff a couple of months ago.
How has it performed compared to the ASX 200?
The AFIC share price held up pretty well during the coronavirus selloff. At the end of May 2020 AFIC could show that its net asset performance (including franking) performed 2.6% better than the S&P/ASX 200 Accumulation Index (including franking) over the past year, with a fall of just 3%. Despite that recent outperformance, it still lags the index over the past five and ten years.
However, at the moment the AFIC share price is trading at a 6.9% premium to the May 2020 net tangible assets (NTA). That means you’re buying $1 of AFIC for less than $1 of assets. Not a great deal.
The dividend has been reliable over the long-term – but will it continue to be sustainable if banks are not paying the same dividends as they were before? However, I do like that AFIC’s operating costs are so low at just 0.13% per annum.
AFIC isn’t a bad option. But it’s trading at a noticeable premium right now, so you may as well just go for an ASX 200 or ASX 300 exchange-traded fund (ETF) which you can buy at asset value.
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More reading
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- 3 strong ASX dividend shares to buy right now
Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of Transurban Group and Wesfarmers Limited. 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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