The Australian Foundation Investment Company Ltd (ASX: AFI) share price has been dropping lower in September.
AFIC is a listed investment company (LIC) that aims to provide shareholders with "attractive investment returns through access to a growing stream of fully franked dividends and enhancement of capital invested over the medium to long-term".
One of the main benefits of LICs is that they do the investing on behalf of investors. AFIC's investment team will pick out a portfolio of shares that are thought to be able to achieve the targeted investment objectives.
Let's have a look at how AFIC's share price has been performing in recent times compared to the S&P/ASX 200 Index (ASX: XJO).
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AFIC performance
Over the last month, the AFIC share price has dropped by 7% and in 2022 to date it has declined by around 11%.
In the last month, the ASX 200 has only fallen by 2.6%. In 2022, the ASX 200 has fallen by around 10%.
The AFIC share price has underperformed over both periods.
However, one thing to be aware of with LICs is that they can trade at premiums or discounts to the net tangible assets (NTA) per share. Changes in the premium can impact the share price.
But, AFIC does regularly tell investors about its portfolio performance compared to the S&P/ASX 200 Index Accumulation Index (ASX: XJOA).
In the 12 months to 31 August 2022, AFIC's net asset per share growth plus dividends (including franking) had fallen by 6%, compared to just a 2.1% fall for the ASX 200 Accumulation Index.
There has been underperformance in the shorter term.
But, over the past three years, AFIC has delivered stronger returns. The LIC reported that its portfolio delivered an average net return per annum of 8.1%, beating the 6.8% return per annum of the ASX 200 Accumulation Index, including franking.
The question for investors is whether the AFIC share price premium is worth it. At the end of August 2022, it was at a premium of more than 10% to the NTA. In the prior decade, it has only been at a higher premium a few times, which was during the COVID period. Before COVID, it didn't trade at as high a premium.
Portfolio holdings
AFIC's portfolio return will be dictated by its investment returns. The biggest positions will have the largest weightings.
At the end of August, these were the positions that had a weighting of at least 4%: Commonwealth Bank of Australia (ASX: CBA), CSL Limited (ASX: CSL), BHP Group Ltd (ASX: BHP), Transurban Group (ASX: TCL), Macquarie Group Ltd (ASX: MQG), Wesfarmers Ltd (ASX: WES) and National Australia Bank Ltd (ASX: NAB)
It's these holdings that could have the biggest indirect influence on the AFIC share price.
