What I Think of AFIC - Barefoot Investor
For many years I’ve written about the Australian Foundation Investment Company, AFIC. Have I changed my mind?
Kinda.
When I started as an advisor, the financial landscape was very different.
There were no exchange traded funds (ETFs) like Vanguard offers today.
And there were very few low-cost index funds. Instead, most investors were stuck in extremely expensive managed funds from the likes of AMP and Colonial.
And it was all fees, fees, fees:
You’d get whacked with establishment fees … contribution fees … administration fees … investment management fees … switching fees … withdrawal fees … and, of course, juicy trailing commissions to the salespeople who flogged them!
Yet AFIC was a shining light in the darkness.
It refused to pay trailing commissions to financial advisors. And, even though it was a managed fund (not an index fund), it steadfastly kept its fees incredibly low, around 90% cheaper than most managed funds.
What’s more, it had a long history of outperforming its peers, thanks to a boring philosophy of buying quality businesses at good prices and holding them long term.
It’s a strategy that’s served AFIC well during its 90+ year history.
From being born in the go-go years of the 1920s … through the Great Depression … the Second World War … the Black Monday crash of 1987 … the Dotcom Bubble … and the GFC … AFIC has steadfastly weathered crisis after crisis.
Better yet, historically AFIC has outperformed most of its peers ‒ partly because it charged lower fees, and partly because of its proudly boring philosophy of investing in quality businesses and holding them for the long term ... something they’d been successfully doing since before the Great Depression.
In short, recommending AFIC was a no-brainer.
And that’s why my family and friends have invested in AFIC.
Be Prepared to Kill Your Darlings
So right now you’re reading this thinking to yourself:
“Okay, so this is another puff piece. I’ve been reading Barefoot talk glowingly about AFIC for years.”
Wrong.I don’t do puff pieces, especially when it comes to investments that my family and friends are invested in.
If anything, I’m tougher on AFIC because of it.
There are no free passes.
And my personal view is that, 20 years after I began investing in AFIC, the market has caught up with them:
For the first time ever, there is more money invested in ETFs than there is in listed investment companies (LICs) like AFIC.
And in regard to AFIC ...
Their returns have matched — rather than beaten — the index over the past 10 years. Their fees are low but haven’t been falling in proportion with the increasing size of their portfolio.
So, I don’t believe that AFIC will outperform the market by a wide margin, because its portfolio is so large that it now basically replicates the index. And remember, the overwhelming majority of actively managed funds underperform a basic index fund.
And perhaps for that reason, an index fund would be the easiest investment going forward. However, before you do anything your first investment should be to sit down with an independent financial advisor.