Index ETFs automatically follow an index, buying and selling shares based on size alone. They are not actively managed, don’t consider valuation or dividend quality, and can’t manage concentration risk. Their trust structure means all income must be paid out each year, so dividends can be volatile and franking levels vary with the index. ETF distributions can also be tax-complex, often including multiple income components. LICs, by contrast, are actively managed and can focus on long-term value and fully franked dividends. They can retain profits in strong years to smooth dividends in weaker periods, often pay a single fully franked dividend, and give investors more control over capital gains tax, which only applies when shares are sold.
- ETFs are simple market plays, whereas with LICs you’re largely backing a manager.
