A listed investment company is a business that purely invest in other businesses.
Some LICs focus on big blue chips, examples of this are Whitefield Limited (ASX: WHF) and Australian United Investment Co Ltd (ASX: AUI).
However, some LICs focus on faster-growing small cap businesses that are more likely to beat the market.
Wilson Asset Management runs several LICs and I think they are some of the best LICs on the ASX.
Here are three reasons why I own shares in WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX):
High levels of cash
Both WAM Capital and WAM Research maintain high levels of cash throughout the year.
Over the long-term cash isn't the best investment, particularly in this low interest rate environment.
However, in the short-term cash can be a great way to defend against market crashes and it also means the business has ample ammunition for any opportunities that may present themselves.
High performance
The efficient use of cash, combined with a focus on undervalued growth companies has created wonderful returns for shareholders over the last five years.
WAM Research has returned an average of 21.1% per annum over the last five years.
WAM Capital has returned an average of 17.1%% per annum over the last five years and 11.2% over the last 10 years.
Past performance is not a guarantee of future performance, but Wilson Asset Management should continue to outperform if they stick to their market-beating strategy and process.
Big dividends
WAM Research and WAM Capital generate significant profit and that allows them to pay out a large, growing dividend every year.
Both WAM Capital and WAM Research have grown their dividends every year since the GFC.
WAM Capital is currently trading with a grossed-up dividend yield of 9.13%. WAM Research is trading with a grossed-up dividend yield of 8.87%.
Foolish takeaway
I'm happy to invest in these two LICs not only because of their high performance but also because they give me exposure to a lot of investments I wouldn't normally consider.
Out of the two, I prefer WAM Research a bit more because it only focuses on the quality of the underlying business and it has a bigger profit reserve.
