WAM Income Maximiser – the first listed investment company to combine equity with debt

The Income Maximiser from Wilson Asset Management (WMX) seeks to deliver investors monthly income and capital growth while taking less risk, from investing in high-quality equities and corporate debt. It aims to deliver underlying income above a hurdle rate of the Reserve Bank of Australia (RBA) cash rate + 250bps, with the ability to add to this with capital growth. Over the past year, the portfolio benchmark of 60% equities and 40% debt delivered franked income of roughly 6.5%, plus capital growth of 6.2%, before considering any additional returns from our ability to outperform the benchmark through active management.

 WMX is a natural replacement for outgoing bank hybrids. We think that it should appeal to anyone looking for inflation-protected income, such as those who are retired or on the verge of retirement. The fund should also appeal to anyone looking to diversify their portfolios against crowding in long-duration exposures, because it operates on a short-duration benchmark.

How is it different to other income products?

As the first listed investment company in Australia that combines equity with debt, WMX has several features that sets it apart from other income products. First, the fund invests across both equity and debt markets, with a heavy emphasis on high quality securities. Our through-the-cycle benchmark portfolio is 60% equities, and 40% debt, because our back-testing reveals this to be the optimal way to maximise returns, lower risk and emphasise franked distributions in the generation of returns. Importantly, the debt portfolio gives retail investors access to wholesale debt markets that would not otherwise be easily accessible to them. It also helps with income generation, freeing up the equity portfolio to search for investments using criterion apart from dividend yield.

Second, the equity portfolio is not just about harvesting dividends from the highest yielding stocks. Rather, our goal is to identify companies that are either paying high dividend yields today, potentially paying high dividends tomorrow, or potentially returning capital through other transactions. To achieve this, we screen the investable universe by considering factors such as distribution yield, free cashflow yield, dividend growth, free cashflow growth, expected free cashflow volatility, return on invested capital, and cyclicality. We then apply the proven Wilson Asset Management way of investing to pick securities within the investable universe, considering macro and micro fundamentals, as well as positioning.

Third, the debt portfolio is invested predominantly in investment grade, floating rate corporate notes and bonds, to support payment of monthly income, diversify equity risk, and enable the equity portfolio to do more than dividend harvesting.

Multiple levers to pull in the portfolio to add value

WMX is not a passive investment product. As active managers, we are always hunting for opportunities to add value. Importantly, there are multiple levers to pull in the portfolio to add value. For example, within equities, there is plenty of scope to flex our weightings on different factors, and exercise discretion in stock selection based on qualitative management signals, while still paying a monthly income. Our goal is to generate capital growth through our active management on top of collecting dividend and interest income. For the debt portfolio, we have some discretion to take on more duration or credit risk while maintaining a high-quality core portfolio, should we have a high conviction view about either. Importantly, we are looking to triangulate debt and equity signals in portfolio construction, as we have always done just in the equities universe. Finally, we can tilt our asset allocation across debt and equity according to our proprietary macro frameworks. Essentially, we have more instruments with which to express the macro views that have always underpinned our way of investing.

Find out more about WMX

Register to attend the WAM Income Maximiser Webinar to find out more about portfolio construction and corporate bond ideas.

Date: Monday 31 March 2025 2:00 pm (Sydney time)

Find out more about WAM Income Maximiser.

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