Harbour Australasian Equity Income Fund
Generating Income In a Low Interest Rate World
Thursday, November 1st 2012, 9:49AM
by Harbour Asset Management
Investors have historically generated income in their portfolios using fixed income and cash investments, and diversified their portfolios by investing in equities and real assets such as property and commodities.
This ‘balanced’ approach has placed bonds at the low end of the risk spectrum and equities at the high end. Traditionally, investors have considered bonds and cash as their income generating asset classes, and equities as providing a source of long term real capital protection. Over the very long term, equities have actually done a good job of protecting wealth after inflation and tax.
Several significant forces are changing the way we think about balanced portfolios.
Firstly interest rates are near record lows – it is getting harder to generate real after tax and fee returns from cash and bond portfolios. Secondly, equity market valuations seem attractive and the equity market is yielding a lot more than term deposits or corporate bonds. Third, pooled Portfolio Investment Entity (PIE) funds have attractive efficiency and tax characteristics for many New Zealand investors.
Harbour appreciates the dilemma clients and financial advisors face and has launched the Harbour Australasian Equity Income Fund in January this year. This new addition complements the other income funds we currently offer being the Harbour Corporate and Harbour Core Fund.
Harbour’s Equity Income Approach
Harbour has an actively managed strategy, that seeks to invest in a diversified portfolio of 40-60 New Zealand and Australian listed equities that are expected to generate attractive dividend yields. This approach seeks to provide a lower volatility approach to New Zealand and Australian markets with less potential stock specific risk.
The Harbour Australasian Equity Income Fund investment process blends a quantitative screening process with a fundamental analyst overlay in forming the portfolio. The quantitative process seeks to identify those companies which are attractive on sustainability and growth of dividends and earnings, and have an attractive valuation. A final fundamental review from Harbour analysts provides the portfolio manager with further conviction prior to implementation.
A pooled investment PIE fund holding between 40-60 companies spread across the Australian and New Zealand equity market provides investors with a well diversified portfolio that wouldn’t normally be available in a cost effective manner to individual investors. The fund also has the capacity to invest up to 35% of the portfolio in cash and or fixed income products. This decision will reflect the prevailing economic and macro environment and the relative attractiveness of the various asset class yields. The fund will distribute all net income earned on a quarterly basis to investors with the option to reinvest distributions. Being a PIE vehicle also reduces the tax and administration requirements of individually held investments.
The Fund is available on most of the wrap or custody platforms e.g. Aegis and OneAnswer.
Conclusion
An actively managed and diversified portfolio of liquid, quality companies paying sustainable dividends in a low interest environment can provide sensible diversification for income focused investors. The Harbour Australasian Equity Income Fund is designed to provide this type of exposure within investors’ portfolios. For investors seeking to blend this income generation capacity with the lower volatility of bonds, Harbour also offers the Harbour NZ Corporate Bond and the Harbour NZ Core Fixed Interest Funds. These two Funds are managed by the experienced Harbour fixed interest team.
Harbour also offers the Harbour Australasian Equity Fund which is designed to provide the capital growth component to investment portfolios over the medium term.
Returns are for the Wholesale Australasian Equity Income Fund which the Retail Fund invests into. Returns are before tax & fees. Returns include imputation credits. Inception date: Jan 2012
For more information and a copy of the Investment Statement for any of the Funds offered by the Harbour Equity or Fixed Interest teams, call Jody Kaye on 09 307 5731 or email:jody@harbourasset.co.nz
Visit our website at: www.harbourasset.co.nz
Important disclaimer information
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