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.

More reading

• 2 cheap ASX 200 shares to buy right now
• Is the CSL share price a buy?
• 2 ASX 200 shares to watch on Tuesday
• 3 ASX shares to buy and hold for the next 2 decades
• 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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So much for ‘sell in May and go away’.

May turned out to be a stellar month for the S&P/ASX 200 Index (ASX: XJO) and the broader ASX share market.

Over the month, the ASX 200 returned 4.2%. This is around half of the total return you can typically expect from ASX 200 shares over a year. Not bad!

But of course, some shares fared better than others during the month, outperforming the ASX 200. And some blue chips, like the big four banks, did exceptionally well. Others, like Telstra Corporation Ltd (ASX: TLS) and Woolworths Group Ltd (ASX: WOW), did relatively poorly.

So here are some of the best performing ASX shares over the month of May

Afterpay Ltd (ASX: APT)

By any metric possible, the Afterpay share price had a phenomenal month in May. Afterpay started the month at $31.20 and finished it at $47.41. This delivered the buy-now-pay-later (BNPL) giant a monthly gain of 52%. This ASX 200 stock also hit a new all-time high of $50.01 during May.

Afterpay shares are now over 400% higher than the lows we saw in March, proving once again how treacherous betting against this volatile company can be.

Zip Co Ltd (ASX: Z1P)

Another ASX payments company, Zip had an even better month in May than Afterpay. Zip Co shares started off the month at $2.39 and finished up at $3.75 – a rise of 56.9%. Like Afterpay, investors’ concerns that BNPL companies would be inundated with defaults has proven to be largely unfounded.

It’s probably very good timing for the company to announce a trading halt and a capital acquisition program, which it did yesterday.

Fortescue Metals Group Limited (ASX: FMG)

Fortescue Metals is another ASX 200 company that had a fantastic month during May. Its shares were up over 16% by the end of the month. This preceded the printing of another new, all-time high of $14.88 per share today.

A rising iron ore price, partly caused by production issues in Brazil throughout May, was the main driver of the rising Fortescue share price. Iron ore is now at a multi-year high at close to US$100 per tonne. If this price holds up for the rest of the year, I think we can expect the Fortescue share price to do the same.

Webjet Limited (ASX: WEB)

Here we have another ASX 200 company that pulled a rabbit out of its hat in May with a 35.3% increase in its share price for the month.

Webjet, as an ASX travel stock, was smashed in March as travel restrictions were implemented. But rumours of a possible ‘trans-Tasman bubble’ that will allow travel between Australia and New Zealand in the near future has partially restored investors’ confidence in the company. Even so, this ASX 200 share remains nearly 60% lower than its 2020 highs.

More reading

• 3 things ASX investors need to know about the RBA’s rate decision today
• Zip Co share price rockets 44% higher on U.S. expansion news
• Could Goldman Sachs’ 2020 predictions for the US share market spell the end of the ASX 200s remarkable rise?
• The 3 ASX tech stocks that helped this fund manager outperform in May
• 3 investing secrets for success with ASX shares

Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Telstra Limited and Webjet Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO and Woolworths 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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As my colleague pointed out in this article several years ago, listed founder-led companies have historically outperformed the rest of the market by some distance.

There are a number of factors that are potentially behind this phenomenon, but I think Ben Horowitz from venture capital firm Andreessen Horowitz sums it up best.

When explaining why Andreessen Horowitz prefers to invest in companies that are founder-led, Mr Horowitz said:

“Founding CEOs naturally take a long view of their companies. The company is their life’s work. Their emotional commitment exceeds their equity stake. Their goal from the start is to build something significant. They instinctively know that big product cycles come from investment and that even the biggest product cycles will eventually fade.”

Mr Horowitz added: “Professional CEOs, on the other hand, tend to be driven by relatively shorter-term goals. They are paid in terms of stock options that vest over 4 years and cash bonuses for quarterly and yearly performance.”

This is seen as a big negative, as it takes time to innovate.

“Investments in innovation do not pay out in the current quarter. Typically, they don’t even pay out in the current year. If you care about your bonus this year, you are directly incented not to make investments in new inventions as you will incur the expense, but reap no profits,” he explained.

Given the success that Andreessen Horowitz has had investing in founder-led companies, it’s hard to argue against this.

The venture capital firm made early investments in the likes of Facebook, Slack, Instagram, and Airbnb.

Are there founder-led companies on the ASX?

There are actually a decent number of founder-led companies on the Australian share market for investors to choose from.

I like the look of Kogan.com Ltd (ASX: KGN) as a long term investment. The ecommerce company, which is led by Ruslan Kogan, looks like a big winner from the shift to online shopping.

Another option to consider is Dicker Data Ltd (ASX: DDR). The leading computer hardware and software company was founded by David Dicker and Fiona Brown. It has been going from strength to strength in recent years and shows no sign of stopping. Mr Dicker remains the company’s CEO, whereas Brown sits on the board.

A final founder-led company which I would invest in is ResMed Inc. (ASX: RMD). The sleep treatment focused medical device company has been an exceptionally strong performer over the last decade thanks to the growing demand for its products and software.

ResMed founder Peter Farrell is the Chairman of the company and his son, Mick Farrell, has been the Chief Executive Officer since 2013.

More reading

• The 3 ASX tech stocks that helped this fund manager outperform in May
• ASX 200 investor in your 40s? 3 shares to buy now
• These ASX shares just zoomed to multi-year highs
• Buy these ASX growth shares for monster returns
• Real wealth from 3 roaring mid caps in May

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited and Kogan.com ltd. The Motley Fool Australia has recommended ResMed Inc. 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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