Home' Forge : Vol 2 No 2 Contents investors. A range of unlisted
managed bond funds is available,
and those who prefer to access
them via the ASX can utilitise
the new mFund service, where
investors apply for and redeem
funds via their stockbroker.
The PIMCO Global Credit Fund
-- Wholesale class, available via
mFund, has returned 7.3 per
cent annually over fve years.
PIMCO is one of the world's great
fxed-income investors. The UBS
Australian Bond Fund has returned
6.1 per cent annually over fve
years, and the Schroder Fixed
Income Fund -- Wholesale class
returned 5.88 per cent annually over
5. Exchange-traded funds
The boom in exchange-traded funds
(ETFs) on the ASX in the past three
years provides new options for
income-focused investors who want
Exchange-traded products (ETPs)
seek to replicate the price and yield
performance of an underlying
index, rather than attempt to
outperform that index through
active management. They cost less
than most actively managed funds,
and are bought and sold on the ASX
Investors can choose from a range
of ETPs over Australian and
international fxed-income indices,
cash and shares. The iShares
Treasury ETF, for example, had
a historical distribution yield of
5.68 per cent at March 2016, ASX
data shows, while the Vanguard
Australian Fixed Interest Index ETF
yielded 3.85 per cent.
Several issuers offer specialist
yield ETFs that provide exposure
to a basket of large- and mid-cap
shares with higher dividends. The
SPDR MSCI Australia Select High
Dividend Yield Fund yielded
8.49 per cent at March 2016,
ASX data shows. The Vanguard
Australian Shares High Yield ETF
yielded 7.69 per cent, and the UBS
IQ Morningstar Australia Dividend
Yield ETF, for example, yielded
6.19 per cent at March 2016.
Always understand the
methodology behind yield-focused
ETFs; it can vary widely across
issuers, making some ETFs riskier
than others. But a yield of seven
to eight per cent from a basket of
stocks managed by a well-known
issuer appeals in this market.
6. Listed property
Some investors could argue that
they have enough property exposure
through their house or investment
properties. Nevertheless, there is
a good case for income-focused
investors to have a small portfolio
exposure to listed Australian or
global property securities.
Australian Real Estate Investment
Trusts (A-REITs) have been a
strong source of yield and total
return (growth plus yield) in the
past three years. In a low interest-
rate environment, investors have
favoured interest-rate sectors such as
property, infrastructure and utilities.
In theory, A-REIT yields should
have less risk than yields from
industrial companies. Rents from
long-term leases in high-quality
buildings are less volatile than
corporate profts. But the A-REIT
sector can be volatile when rates
rise, or during market sell-offs.
Gaining exposure through a
specialist property managed fund,
such as SG Hiscock and Co, makes
sense for conservative investors.
Alternatively, ETFs over property
indices are an option for investors
seeking the market return in
Portfolio investors seeking direct
A-REIT exposure should stick
to the bigger names: Westfeld
Corporation, Goodman Group,
GPT Group, Mirvac Group and
Stockland, for example.
Those with higher risk tolerance
could consider newer A-REITs that
focus on faster-growing sectors and
offer higher yield. They include
Arena REIT, Asia Pacifc Data
Centre Group, National Storage
REIT and Rural Funds Group.
Several A-REITs have rallied in
the past two years, so pay extra
attention to their high valuations,
and seek advice.
7. Listed investment companies
Listed funds that own Australian
shares are an increasingly popular
option for yield-focused investors.
Listed investment companies (LICs)
are essentially managed funds that are
bought and sold on the ASX like shares,
and typically have small annual fees.
The best-known LICs include
Australian Foundation Investment
Company, Argo Investments and
Milton Corporation. They yielded
four to fve per cent at March 2016,
ASX managed-funds data shows.
Smaller LICs that have more fexible
investment mandates offer higher
yields, with commensurate risk.
The Australian Leaders Fund, for
example, yielded 6.9 per cent at
March 2016, and has a consistent
dividend record. Another strongly
performing LIC, Cadence Capital,
had a distribution yield of almost
seven per cent in March.
8. Direct Australian equities
Many income-focused investors
favour direct investing in Australian
62 // wealth creator
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