Funds such as Nikko AM Australian Share Income, MLC IncomeBuilderTM and Legg Mason Martin Currie Equity Income have paid out some of the Australian equity income sector’s highest income distributions over the past five years, the latest Money Management research shows.
With investors still very much searching for income, funds focusing on the Australian stock market remain a relatively good source of yield. FE Analytics shows the average AMI Equity Australia Equity Income fund is currently yielding 3.32 per cent – compared with a yield of just 2.42 per cent on the MSCI AC World index.
However, yield can only tell investors so much about the income profile of an investment so in this article we ran the numbers to find out how much money had been paid out by AMI Equity Australia Equity Income funds over the past five years.
A quick bit of housekeeping: in order to do this, we looked at the income earned on an initial investment of $10,000 made on 1 July 2012 through to 30 June 2017.
We found that the average fund distributed a total of $3,410 over this five-year period and the top 15 are listed in the table below. However, the fund at the top of the table – MLC National Australia Investment Trust Dividend Imputation, which paid out just over $5,250 – is no longer open to new investors, according to Bloomberg.
Source: FE Analytics
The fund in second place is still open for new cash. Nikko AM Australian Share Income, which is managed by Michael Maughan and Mal Whitten, has paid out close to $5,000 on an initial $10,000 over the five years in question.
The $146.2 million fund has the aim of generating a tax-effective income stream that exceeds the dividend yield of the S&P/ASX 200 Accumulation Index (grossed up for franking credits) by two per cent per annum over rolling five-year periods. It also targets some capital growth over the long term, in order to act as an inflation hedge.
Maughan and Whitten, who adopt Nikko AM’s intrinsic value approach that seeks good value stocks offering the best compromise between risk and expected return, have a strong emphasis on tax effectiveness, resulting in a focus on franked income, off-market share buy-backs and minimising share turnover to keep net realised gains low.
It aims to be a diversified portfolio of between 40 and 70 stocks, built independently of an index within specified risk parameters. According to its factsheet to the end of June 2017, the fund’s largest holdings are Commonwealth Bank, Westpac Bank, ANZ Bank, National Australia Bank and Telstra.
Income paid out by Nikko AM Australian Share Income over five years
Source: FE Analytics
MLC’s IncomeBuilderTM strategy also ranks higher, with two products paying out more than $4,800 on the $10,000 initial investment.
With a focus on companies that are expected to grow their dividend payments over time, this is another Australian equity income strategy that pays close attention to delivering a tax-effective income stream.
Owing to MLC’s multi-manager approach, 70 per cent of the portfolio is run by Maple-Brown Abbott while Antares Capital Partners manages the remaining 30 per cent. MLC said: “Both are active investment managers with strong stock-picking skills, disciplined methods of constructing their portfolios and careful risk management”.
They take different approaches to stock-picking. Maple-Brown Abbott looks for businesses that will pay growing and sustainable dividends with ‘good’ franking levels while Antares is more concerned with companies with high dividend yields and ‘high’ franking levels.
Income paid out by MLC Wholesale IncomeBuilderTM over five years
Legg Mason Martin Currie Equity Income Trust, headed up by Martin Currie Australia chief investment officer Reece Birtles, is another AMI Equity Australia Equity Income fund paying out much more than its average peer.
The $163m million fund has the target of providing an annual franked income of more than 25 per cent above the S&P/ASX 200 Index yield. It also pays out a fifth dividend where net realised capital gains are re-invested back into additional units, in order to grow the investor’s capital base and provide more stable cash distributions to investors.
In addition to the above, the fund uses three other strategies to try and grow its income stream over time. Birtles invests in stocks that he thinks can increase their dividends, looks for companies with the potential for capital growth to increase the value of the investors’ units and has a bias to sectors that are correlated to consumer spending patterns in order to hedge against inflation.
Insurance Australia Group, Telstra Corporation, Wesfarmers, Westpac Banking Corporation and Commonwealth Bank of Australia are the fund’s largest holdings, as of its most recent factsheet.
Income paid out by Legg Mason Martin Currie Equity Income Trust over five years
Gary Jackson is editor of FE Trustnet, Financial Express’ London-based fund research website.
