This reporting season has reopened a debate that resurfaces every few years across the listed investment company sector: does the structure still earn its place in a portfolio, or has it been overtaken by exchange traded alternatives.
The debate has been sharpened by a run of soft annual results across parts of the sector, with several listed investment companies reporting portfolio returns behind the broader market this financial year. Shareholders have asked pointed questions of boards and managers about fees, structure and whether the model still works. That scrutiny is what makes this sector stronger.
Why Income Still Works
On that front, the numbers speak for themselves. In FY26, FSI paid dividends totalling 10.35 cents per share, a dividend yield of 8.7% (excluding franking credits) based on the closing share price at 30 June 2026. In keeping with FSI’s fully franked dividend policy, those distributions carry additional after-tax value for eligible shareholders. For a self-funded retiree, or a family building toward generational wealth, a reliable, tax-effective income stream matters more than short-term movements in net tangible assets.
A tax backdrop that favours income
That focus on income is also becoming more relevant given where capital gains tax policy is headed. Under the current 2025-26 rules, individuals and trusts can still discount a capital gain by 50 per cent where an asset has been held for more than 12 months, and net capital losses can be used to offset gains made in the same income year.
Those settings change from 1 July 2027. Following the 2026 Federal Budget, the 50% CGT discount for individuals, trusts and partnerships will be replaced with an inflation-adjusted cost base indexation, and a minimum tax rate of 30 per cent will apply to capital gains under the new rules. Gains accrued up to 30 June 2027 retain transitional protection under the existing 50 per cent discount framework, but from that date, the after-tax reward for chasing pure capital growth narrows.
We think that shift changes the calculus for a lot of Australian investors. When the tax treatment of capital gains becomes less generous, a reliable, fully franked income stream becomes relatively more attractive, not because the return itself is higher, but because more of it stays in the shareholder’s pocket. We expect this change to support continued demand for income-focused, tax-effective structures like FSI in the years ahead.
A discount that works in investors' favour
There’s a further feature of the LIC structure worth noting for investors weighing this environment. Because LICs trade on the ASX at their own share price, rather than being redeemed at net asset value like a managed fund, that price can sit above or below net tangible assets (NTA) at any given time. When a LIC trades at a discount to NTA, buying at that price provides access to the same underlying dividend stream for a lower initial outlay, which lifts the effective income yield relative to buying at NTA itself. It is one of the structural features unique to LICs, and one that becomes particularly relevant when income, rather than short-term price movement, is the objective.
A tax-effective advantage, by design
It helps that our fee structure is built around the same principle. FSI charges no management fee on investments and relies on a performance fee structure, meaning we are only rewarded when shareholders are too. Combined with a concentrated, RIAA-accredited portfolio and a Board that focus on long-term horizons, this keeps our interests squarely aligned with the people who trust us with their capital.
None of this means listed investment companies, FSI included, are immune to a difficult year. Markets move in cycles, and any structure that holds equities will feel the effect of a broad market downturn or a period of underperformance relative to an index. What we can control is how we respond: staying disciplined on the companies we own, keeping costs low, and continuing to pay a sustainable, fully franked dividend through the cycle.
That is the case we would make for the LIC structure, and for FSI specifically, at a moment when the debate has understandably grown louder.
This is general commentary on legislated tax settings, not financial or tax advice. Shareholders should speak with a qualified adviser about their own circumstances.
Gross performance before fees, taxes and charges. Past performance is not indicative of future returns.
