The Merlon Australian Share Income Fund (the Fund) uses a combination of fundamental research, portfolio diversification and downside protection with the aim of providing investors sustainable, growing, tax-effective monthly income.
Retirees face many challenges in maintaining their lifestyle over the long-term. Below we look at some of the key investment needs for retirees, and how the Merlon Australian Share Income Fund can address them as a component of a retiree’s investment strategy.
Retirees need regular cash flows to meet living expenses and one-off costs. Record low interest rates make it difficult for retirees to generate regular income to fund their lifestyle.
The Fund seeks to invest in a portfolio of undervalued shares with sustainable underlying free cash flows from their core businesses, expecting these companies to deliver attractive dividend streams.
Retirees need their capital to keep pace with inflation so that the buying power of their savings isn’t eroded over time.
By investing in equities, the Fund aims to provide capital growth and assist investors with increases in the cost of living.
Retirees need more consistent investment performance. As contributions cease and the balance starts to draw down, market shocks are magnified, taking longer to recover from.
Merlon employs a hedge overlay with the aim of protecting 30% of the capital from losses. This protection is targeted at individual holdings in the portfolio that, while having long-term potential, might be most at risk of short-term capital losses.
The combination of the underlying Merlon share portfolio, comprised of our best ideas, and the downside protection overlay results in a portfolio that seeks to deliver higher than market income, with substantially less risk than the market and potential for capital returns that exceed inflation over the medium term.
Importantly, this income has been highly consistent, paid monthly and is announced 12 months in advance, helping investors to plan their future spending.
| Fund name | Merlon Australian Share Income Fund |
| Investment objective | The Fund aims to provide a higher level of tax-effective income with a lower level of risk than the S&P/ASX 200 Accumulation Index, whilst also providing the potential for capital growth and inflation protection over the medium to long term. |
| Benchmark | S&P/ASX 200 Accumulation Index |
| Stocks held in portfolio | 25-35 |
| Minimum investment timeframe | At least five years |
| Investment Universe | The Fund’s investment universe is primarily securities listed on the ASX, or those that Merlon expects to be listed within the next six months. The Fund can also invest in cash and over-the-counter derivatives related to securities listed on the ASX. |
| Investment Parameters* | Securities 90-100%; Physical Cash 0-10% |
| Management Fee | 0.95% p.a. |
| APIR Code | HBC0011AU |
| mFund ASX Code | MLO02 |
*The Fund targets to be fully invested in shares for the purposes of earning dividend income and uses derivatives to reduce exposure to share market volatility to a typical range of 60%-80%.
