As Australia's largest listed investment company (LIC) with an investment portfolio valued at $5.4 billion as of 30 June 2013 and with a history dating back to 1928, Australian Foundation Investment Company (ASX: AFI) is practically a household name amongst long-term share market investors.
Unlike many of the 'younger' LICs, which have primarily been set up with external management structures that essentially mean a greater share of the profits go to the management company rather than the owners of the LIC, AFIC has an internal management structure that allows it to operate on a management expense ratio of just 0.18%. This was down from 0.19% in financial year (FY) 2012.
AFIC's portfolio comprises around 75 of Australia's major companies with the single largest position being a $618 million holding in Commonwealth Bank (ASX: CBA) as of the end of August 2013. Over the past 10 years the portfolio – as measured by net asset per share growth plus dividends – has returned 10.3%, outperforming its benchmark the S&P/ASX 200 Accumulation Index's return of 9.6%. With the release of the financial report, investors now have the opportunity to see where AFIC saw value in the market and which stocks it bought and sold over the 12 months.
AFICS's holding in CSL (ASX: CSL) is currently valued at approximately $52.5 million. During FY 2013 AFIC spent $13.2 million acquiring more shares in the biopharmaceutical company. AFIC also upped its stake in QBE Insurance (ASX: QBE) which is currently the 14th largest position in the portfolio and worth around $114 million. During FY 2013 the LIC spent $14.8 million acquiring more shares in the global insurer.
Beverage bottler Coca-Cola Amatil (ASX: CCL) was also seen as a good buy during the year. Currently the 22 largest holding in the portfolio with a value of around $63 million, AFIC spent $13.4 million acquiring more shares in Coca-Cola Amatil over FY 2013.
Foolish takeaway
The benefits of a long-term buy-and-hold investment style are proven by the outperformance that AFIC has achieved over both the medium and the long-term. AFIC's investment philosophy aims to "provide shareholders with attractive investment returns through access to a steady stream of fully franked dividends and medium to long term capital growth."
While many market participants try to 'hit home runs' and 'win-big' in risky companies, AFIC's returns highlight the benefits of a slow and steady accumulation of wealth through investments in quality companies coupled with diversification.
AFIC has made owning sound dividend-paying stocks a central tenet of its investment philosophy. Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."
More reading
Motley Fool contributor Tim McArthur owns shares in QBE Insurance.
