LIC Review: Australian Foundation Investment Company (AFIC)

Welcome to a new series, called LIC reviews!

Since I bang on about LICs, I thought it best that I go through a few and review them for you guys.  And in doing so, explain my thinking and why I find them attractive for our portfolio.

So from time to time, I’ll review various Listed Investment Companies.  These are LICs I own personally.  And I’m happy to rely on these vehicles to give us the income we require, to sustain our financial independence.

Let’s get started…


Australian Foundation Investment Company (AFIC)


AFIC was established around 90 years ago, back in 1928.  Today, they’re the largest Listed Investment Company on the Aussie sharemarket. 

Investors can buy shares in AFIC just like any other share, through their stockbroker.  I use CMC as my low-cost online stockbroker.

AFIC now manages a portfolio of around $7 billion worth of Aussie shares.  They have invested through many different cycles and varying market conditions.

Being long-term focused, the company will look past short-term noise about the markets or it’s investments.  Instead, AFIC focuses on the long-term potential of the companies they invest in.  And the ability of those investments to provide increased earnings and dividends in the years ahead.


AFIC’s Company Objectives

Here we go, straight from their website…

Our primary goals are:

    • to pay dividends which, over time, grow faster than the rate of inflation; and
    • to provide attractive total returns over the medium to long term.

Sounds pretty good to me.  In fact, that’s exactly what we desire for our own portfolio!

As a result, this is why these LICs sit so well with me.  Our goals are the same.  So we’re invested accordingly.


Investment Portfolio

AFIC has a large diversified portfolio of shares – around 100 different companies.  Since they have such a large amount of money to manage, the portfolio is understandably weighted towards the largest companies on the ASX.

Here’s the breakdown of the portfolio by sector:


AFIC Sector








A good mix of investments there.

Because of this weighting towards large companies, the portfolio is similar to the Aussie market index.  And although it’s similar to the ASX 200, there are still some notable differences.  See below…


AFIC Portfolio







Also, you can see a list of their largest holdings here.

So hopefully, you’ve now got a sense of how AFIC is invested.  One point I’d like to make – they manage the portfolio with their main objective in mind (a growing income stream).

Rather than replicating the index or buying what’s popular, they invest for the long-term income stream.

Most importantly, their dividend focus keeps them out of trouble when the next fad comes up.  Whether it’s lithium stocks, marijuana stocks, or whatever.  AFIC will just keep looking for profitable businesses.  And those that can grow earnings and dividends over time.

As a result, the portfolio is satisfyingly boring!



The last 10 years have been rough for Aussie shares.  Maybe you’ve seen the headlines screaming “zero returns for a decade!”

While this is true in terms of share price, it (stupidly) ignores dividends.

Truthfully, the starting point of 10 years ago is a little unfair.  For one thing, we had that thing called the GFC!

So if one looks at 5 year or 15 year returns, they look much more normal.  Give it 18 months or so, and then the 10 year returns will look incredible 😉

Anyway, let’s look how AFIC has fared over the last 10 years, including dividends, compared to the ASX 200…









So we can see that AFIC has managed to outperform the index nicely over the last 10 years.

Rather than getting zero returns, you would have earned close to an 80% return, over 10 years.  And mind you, this is assuming you invested at the worst possible time (right before the GFC).

Being dividend investors, our focus is on the growing income stream.  It’s just a bonus if our companies manage to outperform the index – it’s not the main goal.

Speaking of growing income…


Dividend Growth

Now, let’s look at whether AFIC has met it’s objective of providing growing dividends to shareholders.

Importantly, their goal is to grow dividends faster than inflation (CPI).  So let’s check that…








Seems like they’ve solidly ticked this box.  And over all periods, including the GFC.

This is an important point.  While the GFC must have been painful for many, it wasn’t a disaster for everyone.  Many LICs keep some profits in reserve, so they can smooth dividends to shareholders over time.  Because times aren’t always good and companies cut their dividends, the LICs will use their profit reserve to make sure their shareholders receive a relatively steady dividend, where possible.

Luckily for shareholders, AFIC was one of the companies who kept their dividend stable during the GFC.  So retirees would have received the same level of dividends, even though AFIC received less dividends from their portfolio.  Dividend smoothing is a great feature of LICs.

And as AFIC receives higher dividends from it’s portfolio over the years, they regularly reward shareholders with a pay-rise.



AFIC is also one of the lowest-cost ways to invest in Aussie shares.

Their Management Expense Ratio (MER) is 0.14%  In other words, very, very low.  They charge no performance fees.  Also, they’re internally managed – meaning no fees are going to an outside manager.

The MER is essentially the costs of managing the company.  Things like staff, office rent, equipment etc.  It’s an important point.  Because as their portfolio increases, their costs stay roughly the same.  As a result, the MER tends to drop.

Only this year, their expense ratio dropped from 0.16%, to 0.14%.  Essentially, the internal management structure means the savings go to shareholders.

Overall, AFIC is a very low-cost way to access a managed portfolio of Aussie shares.



I really like AFIC’s long history, and track record of dividend growth.  Also, it’s large diversified portfolio – around 100 companies from many different sectors.

Since they’ve shown good performance vs the index, that’s also pleasing.

But it’s their objective that I find the most appealing:

To pay dividends which grow faster than inflation, and achieve attractive total returns over the medium to long term.

Living solely on investments, it’s critical that our income is relatively stable and keeps up with inflation over the years.  So I’m comforted by the fact that increasing dividends is AFIC’s goal too.

For accumulators in higher tax-brackets, they also offer a Bonus Share Plan, or Dividend Substitution Share Plan.  This is where you receive bonus shares instead of dividends, and pay no tax.  It’s all ATO approved, I swear!  Essentially, this caps the tax rate at 30% (company has paid tax already, you pay none).  If I was starting my journey today, and in a high tax-bracket, I’d definitely look to harness this benefit.  There are conditions though, so check out the info down the page here – under Dividend Substitution Share Plan.

Given AFIC is a long-term investment company, the ATO has also allowed them to pass on the Capital Gains Tax discount to shareholders.  So every now and then your dividend will come with franking credits, plus a special Capital Gains Tax discount, tax deduction.  Win, win!



If anything, I would prefer AFIC had less exposure to resources companies.  Primarily, because of the woeful returns from resource companies historically, which I spoke of here.

Although, who said the future looks anything like the past?  And since they tend to focus on only the largest, dividend-paying resource companies, it may not be a problem.

Also, their portfolio size may become tricky.  With $7 billion, it may be hard to make meaningful new investments, without buying large stakes in small companies.

And given their long term ownership of some stocks, there would likely be a large tax bill triggered if they sold.  There’s a chance this makes them hold on to companies with less-than-bright futures for too long.

Admittedly, the portfolio is probably still a little heavy on financial shares.  But to be fair, they’ve been some of the most profitable companies in Australia.  And many financial companies pay great dividends, so for an income investor, they’re hard to ignore.


In Summary

Overall, I’m a fan of AFIC.

To me, they’re a great low-fuss option for investing in Australian shares.  With a portfolio of 100 companies, our dividend income is sourced from many different businesses.

I think that AFIC should have good performance over the longer term.  And I’m confident, in 30 years time they’ll be paying much higher dividends to shareholders.

Finally, I’m putting my money where my mouth is – I’ve been buying AFIC shares for our own portfolio.

Currently, it’s on a dividend yield of 4%.  Or 5.7% gross yield (including franking credits).  That’s a pretty attractive starting point.  And an income which should grow steadily over the years.

A low-cost, long-term, dividend-focused and tax-efficient investment vehicle…what’s not to like!


Note:  All figures, graphs and data are from AFIC’s most recent presentation, which you can find here.



  1. Woohoo. LICs, now you’re talking young fella.

    Note that AFI has around 20% more franking than the Index so in your Accumulation (includes dividends) chart above if franking was added the outperformance would be better again. Note also the index doesn’t include fees which even index ETFs charge investors. All this is no doubt nothing new to you.

    AFI could be described as being a mostly ASX Top 50 LIC. So what’s the perfect match for AFI? Drum roll …… . MIR, run by the same mob but focuses on the ASX Ex-50 sector of the market. But I’ll wait till your review of MIR before discussing that further.

    As for AFI those keen enough can get additional information to the above excellent review from the following Research Report:

    Unlike a number of the new breed LICs that have listed in recent years old school LICs like AFI certainly won’t cause you any heartburn.

    Keep up the great work.


    1. Haha, thought I’d get a comment out of you!

      Funny you say that, actually I think it is including franking – they show in that same report that total franked return has been 5.7% over 10 years. That works out to around 75% or so total return over 10 years, which is exactly what the chart shows. So I did write initially saying it’s not including franking…but it appears it is!
      But you’re right the index is not taking fees into account. I don’t want to bag the index too much..the bogleheads will be after me!

      Be patient mate…I’ll get around to the others 😉
      I plan to outline quite a few of them. And then discuss how one might bring them together. Although, I’m worried it will take away from the simplicity of it all.

      Thanks for the extra report, and your comments as always Austing. Or is it just Flash these days?

      1. Just a note, if AFICs returns are including franking is it fair to compare it to the ASX return which typically doesn’t include the effects of franking in the total return index? Or is that included in the chart comparing the two above?

        1. Hey Pat.

          The figures are from the most recent presentation here

          The returns are both including franking – 5.7% p.a. for AFIC, vs 4.6% p.a. index return. Note – index return is before fees, which would increase the gap. The older LICs are usually quite open and honest about total performance, unlike some of the newer ones.

          Even if total return including franking was lower than index – it’s the relatively predictable and growing income stream I’m after.

          1. It’s definitely a sweet setup. Dividends in Australia with the franking credits, make for some incredible cashflow generation. A couple can receive 40k of dividends tax-free in early retirement, due to the tax-free threshold etc – a wonderful scenario.

  2. Great review! Really looking forward to the next one! I’m a happy holder of both AFI and MIR. Not a mention of NTA anywhere (well done)!!

    1. Thanks mate. You might guess I did that on purpose. It tends to confuse people and with these older LICs, it’s rarely an issue – they’re mostly trading around NTA.

      Simple is best as you know!

  3. Shame that these franking and other aspects don’t apply if you’re overseas… which is logic but a shame really, hence me looking and turning US shares
    Saying this, all my aussie shares are ARG and AFIC too!

    1. Yeah it is a shame for Aussies who wish to retire overseas. Although as you know, it makes sense to invest in overseas shares (more-so) if one is going to live outside Oz.
      Argo is another great LIC, on the list to review 🙂

    1. Thanks for commenting Phil.

      Yeah, it’s nice the older LICs are honest and transparent with their approach and performance, in an industry which is not generally known for it’s trustworthiness!

  4. Thank you, thank you. 2018 is going to be the year when I start to learn about LICs. Articles like this which are easy to read and come from someone with direct experience are so helpful. Looking forward to more.

    1. Thank you for reading it!

      I’ll try my best to keep it simple and explain what various LICs are all about 🙂

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