Australian Foundation Investment Co Ltd (ASX: AFI), or AFIC, is one of the largest listed investment companies (LICs) on the ASX. One of its key figures recently decided to buy more AFIC shares, which could be seen as a positive sign as he buys the dip.
Investors sometimes worry what it means when a leadership figure decides to sell – could it mean that bad news is coming?
However, an investment by a leadership figure is usually positive.
Let's have a look at how heavily the insider has backed the business.
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Director buys AFIC shares
AFIC director Craig Drummond is also the president of the Geelong Football Club, chair of Transurban Group (ASX: TCL), and former Medibank Private Limited (ASX: MPL) CEO. He has been an AFIC director since July 2021.
On 14 April 2023, he decided to add a total of 50,000 AFIC shares to his holding. He bought 18,000 shares for $7.26 per share and he bought 32,000 shares for $7.27 per share. This is a total investment of around $363,000. That's a large investment considering he only had 13,721 AFIC shares before the investment.
Is this a good sign?
For AFIC, I think it definitely is. The AFIC share price is more than 10% lower than where it was 12 months ago, so investors are able to grab a slice of it for a cheaper price.
I think it's an interesting sign that Drummond chose the price he did to buy at. It's essentially where the current AFIC share price is sitting.
AFIC owns a portfolio of blue-chip ASX shares. Investors get a monthly insight into what the underlying value of the LIC is. At 31 March 2023, the before tax net tangible assets (NTA) was $7.10 per share. This means the current AFIC share price is at a premium of just 2% to this March 2023 figure.
This is essentially (close to) the lowest premium it has been at for at least the past two years.
While it would be preferable to buy AFIC shares at a discount to the NTA, it hasn't been possible over the last few years.
AFIC has been an excellent provider of stable passive income in the form of dividends.
However, the AFIC net asset per share growth plus dividends, including franking, has underperformed the S&P/ASX 200 Accumulation Index (ASX: XJOA) (including franking) over the past year, three years, five years, and ten years.
For me as an investor, who is looking at a wide range of potential ASX shares, I'm not sure it makes sense to invest in an LIC that is trading at a premium even though it has underperformed the index.
But, it is cheaper than before and it provides an easy way for investors to invest in ASX shares while receiving good dividends. So, I wouldn't put it at the top of my list today, but it does seem to be a decent long term option.
