Investors are faced with a dilemma – they're nervous that we could be in the midst of a market crash on the one hand, and on the other hand stock prices have come down and look increasingly appealing based on their dividend yields compared with long-term market averages.
Investors also know that timing the market is a near impossibility and even missing just a few of the best days in the market can lead to significantly lower returns. For this reason, while investors may at times want to reduce their stock specific risk, remaining invested in a high-quality diversified listed investment company (LIC) such as Australian Foundation Investment Co. Ltd. (ASX: AFI) can make a lot of sense.
In fact, over the past 6 and 12 months while the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has slumped around 12% and 8% over each time frame, Australian Foundation has managed to contain its share price falls to 4% and 3% respectively.
The longer term out-performance is also impressive with the stock blitzing the index over the past 5 and 10 years with returns of 25% and 48%, compared with returns of just 12% and 14% from the index.
Of course most investors do also want to maintain some specific stock selections within their portfolio, so it's worth noting what Australian Foundation has been buying in the past year considering its outstanding track record.
Companies that Australian Foundation has invested over $10 million dollars in include CSL Limited (ASX: CSL), AGL Energy Ltd (ASX: AGL) and Healthscope Ltd (ASX: HSO).
With the share price of Australian Foundation currently trading at $5.95, the shares aren't exactly cheap when compared to the latest stated net tangible asset (NTA) backing before tax, but after the payment of its final dividend of $5.48. Ideally, investors would purchase the stock at a level closer to NTA. However, it could also be argued that the premium is deserved.
