The share price of the listed investment company (LIC) Australian Foundation Investment Co Ltd (ASX: AFI) (AFIC) climbed by more than 5% in November 2022.
Its rise of 5.4% compares to a 6.1% rise for the S&P/ASX 200 Index (ASX: XJO). So, this means that the LIC underperformed the overall ASX share market.
However, with how LICs work, its portfolio value didn't necessarily underperform the index.
The share price of a LIC can move independently of its underlying portfolio, which is different to how an exchange-traded fund (ETF) acts – the ETF closely tracks the underlying net asset value (NAV) of the assets it owns.
It's possible for a LIC's share price to be trading at, or move to, a premium compared to the underlying value of the ASX share. But, LICs can also trade at a discount to the net tangible assets (NTA) per share.
AFIC may not release its monthly NTA update for November 2022 until tomorrow or even next week, so investors won't be able to see how the portfolio performed. But, investors can make an educated guess because of the movement of its biggest holdings.
Performance of AFIC's positions
The old LIC owns a portfolio of dozens of shares.
But, we can look at the biggest positions from October and see how well they did.
The Commonwealth Bank of Australia (ASX: CBA) share price – 9.9% of the portfolio at 31 October – went up 3% over the month of November.
CSL Limited (ASX: CSL) shares – 7.9% of the portfolio – increased by 7% last month.
BHP Group Ltd (ASX: BHP) shares – 7.2% of the portfolio – went up by 21.8%.
Transurban Group (ASX: TCL) shares – 4.5% of the portfolio – rose by 7.8%.
Macquarie Group Ltd (ASX: MQG) shares – 4.5% of the portfolio – climbed by 5.4%.
Westpac Banking Corp (ASX: WBC) shares – 4.5% of the portfolio – went down by 1.4%.
While it wasn't a strong month for domestic ASX bank shares, other industries seemed to go well.
BHP was a real standout for the AFI portfolio, while CSL and Transurban also did well.
There is increasing talk that China could decide to significantly ease its COVID rules and restrictions, which are currently putting a handbrake on the country's growth ambitions. This seemingly hurt the iron ore price, which is a key factor in generating profit for BHP because of its mammoth operations in Australia.
Investors will also be hoping that interest rate increases by central banks may soon come to an end, or at least slow down. This could imply a lower peak interest rate, or even mean interest rates start being reduced and normalised. This could be good news for the share prices of names like CSL and Macquarie, as well as the AFIC share price.
Jerome Powell indicates interest rate increases could slow down
Powell is the boss of the US Federal Reserve.
CNBC quoted Powell talking about how the size of the increases could decline because of how it takes time for policy changes to work their way through the system, though rates will stay high:
Despite some promising developments, we have a long way to go in restoring price stability.
Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting.
It is likely that restoring price stability will require holding policy at a restrictive level for some time. History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.
It will be interesting to see how this impacts the AFIC share price and the RBA's thinking in the coming months.
