Is the Australian Foundation Investment Co.Ltd. (ASX: AFI) share price a buy?
This business is commonly known as AFIC, the full name is a bit of a mouthful. It's a listed investment company (LIC) that has been operating since 1928, making it one of the oldest businesses on the ASX.
AFIC's job is to invest in other businesses listed on the ASX to generate a growing stream of fully franked dividends and capital growth.
One of the key attractions of AFIC is that it doesn't charge shareholders a performance fee and its annual management costs are only 0.14%, leaving more net returns for shareholders.
Its portfolio is full of Australia's largest blue chips like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Westpac Banking Corp (ASX: WBC), CSL Limited (ASX: TCL), Transurban Group (ASX: TCL), National Australia Bank Ltd (ASX: NAB) and Wesfarmers Ltd (ASX: WES).
However, AFIC's portfolio returns have been underperforming compared to the index in recent years. Including franking credits, AFIC's portfolio has underperformed the S&P/ASX 200 Accumulation Index by 2.5% over the past year, 1.8% per annum over the past five years and 0.4% per annum over the past 10 years. Although it must be said the index's returns don't include management expenses.
For me, the problem is that AFIC's portfolio is fairly similar to the index, yet the investment changes it has made has led to underperformance. The one positive to AFIC is that it has been paying a very consistent dividend for a long time, but it isn't showing much growth at the moment.
Is the AFIC share price a buy today?
At the end of March 2019, AFIC's net tangible assets (NTA) per share was $6.03 before tax and $5.19 after tax. The LIC is now seemingly trading at a small discount to its underlying pre-tax NTA, which is much more attractive than the last few months when it was at a premium.
Even so, if the portfolio performance continues to underperform the index then you may as well just go with an ASX 200 or ASX 300 ETF.
