Where we see the holy grail of income
Inflation is one of the biggest challenges facing investors, particularly retirees.
It’s hardly a new problem. Inflation is a constant but, given it’s sitting at around 7%, it’s a pressing concern. How do you generate enough income from your investments to sustain your needs and keep up with inflation, without taking on too much risk?
The answer is sustainable income - what we view as the holy grail of income.
What we mean by sustainable income is that the income lasts. In turn, this means capital is largely preserved through time while taking inflation into account. One of the keys to this is the use of franked dividends from Australian equities, but it isn’t as simple as just investing in the top ASX200 companies for your income.
The ASX200 index is heavily skewed towards larger companies, with dividends dominated by iron ore (30%) and the banks (23%). Both of these are macro-sensitive, hardly a contender for capital preservation or sustainability across market cycles.
To avoid this trap in the Merlon Australian Share Income Fund, we focus on valuing companies on the basis of sustainable free cash flow and absolute upside, rather than on the basis of index weights. We also incorporate downside protection to offset 30% of the equity exposure in the Fund.
In this Fund in Focus, I’ll share our approach to investing in companies with sustainable income and introduce you to the Merlon Australian Share Income Fund.
Time stamps:
- 0:00 Introduction
- 0:23 How Merlon’s approach is different
- 1:41 Investment philosophy
- 2:14 Implementing our investment philosophy
- 2:47 Portfolio diversification of income and growth
- 3:22 Risks in retirement and the need for downside protection
- 3:43 Sustainable income paid monthly and majority franked
- 4:05 Merlon Australian Share Income Fund
Learn more
The Merlon Australian Share Income Fund is a portfolio of what we consider to be undervalued companies constructed without regard to index weights, delivering monthly income with downside protection. Visit our website or fund profile below for more information.
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