Diversified approach wins out in equity income sector
Zurich Investment Equity Income Fund and the Colonial First State Wholesale Australian Equity Income Fund have both been awarded a 'highly recommended' rating in Lonsec's Equity Income Sector Review.
The survey also considered five prospect funds, one of which was added to Lonsec's recommended list, the Legg Mason Australian Equity Income Trust.
No funds on Lonsec's recommended list invest predominantly in offshore assets, but Lonsec senior investment analyst Lin Ngin said that investment products focused on income generation would broaden and were likely to include global equities, fixed income and other Australian equity strategies as part of their approach.
"Products simply buying stocks expected to deliver higher dividends are being left behind in terms of innovation," Ngin said.
There has been significant performance disparity between long-only funds and products that implement derivative strategies.
Funds that diversify the composition of their distributions have the ability to participate in corporate strategies for lower yielding stock, "which has resulted in a noticeable uplift in franking level for the more innovative strategies", she said.
"Lonsec has a higher regard for funds able to provide consistent income without eroding the capital base," Ngin added.
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