Income Options - focus for SMSF

[sydboy007]

Call me old fashioned but I like the stability of fixed income over the pico second HFC trading of the Casino ASX

At the moment I have investments providing > 7% yield (pretty good in the financially repressed world we have these days)

EPX (pipne line income trust), AKY (bonds), AYF (hybrids) are all providing nice qtrly dividends with some franking credits on top.

Does anyone know of other similar investments on the ASX? I'd like a bit more diversification as I have teh funds going forward.

 

[Julia]

I'm likewise interested plus in shares that offer decent yield, minimal debt, reasonable stability. Not especially interested in hybrids.
Some funds that are presently at call are pretty obviously going to be hit with more interest rate cuts so will be looking for a new home.

Thanks to ROE for earlier mention of CCP.

 

[sydboy007]

I'm likewise interested plus in shares that offer decent yield, minimal debt, reasonable stability. Not especially interested in hybrids.
Some funds that are presently at call are pretty obviously going to be hit with more interest rate cuts so will be looking for a new home.

Thanks to ROE for earlier mention of CCP.

I don't mind hybrids. Well the old style. The new Basel III compliant ones are a not so fair to lenders, but depending on the company they still provide a decent risk / return.

I like AYF for the fact they invest across a broad range of hybrids and seem to have been relatively successful in managing their investments.

With interest rates set to be lower for longer I'm not sure what other options there are out there. Fixed interest is a scary proposition now in terms of capital losses pretty much guaranteed over the medium term.

If you're comfortable with higher yielding shares keep an eye on http://www.clime.com.au/news-research/dividend-detective/

They helped me pick a couple of decent yielding shares last FY - aggregate return was nearly 50% over 6 months.

 

[ROE]

have you look at install warrant? they are good for SMSF ...you get franking credits and less upfront cash...

you can also research some stable business that pay good dividend and unlikely to go belly up provided you
can handle price volatility without the need to sell....and you can time it so you can enter at reasonable yield
price and hang on...

business such as Amcor, Brambles
FMCG goods like Woolies, Wesfarmers
Fast food like Retail Food Group, Collins Food, Dominos
Gambling like Tatts and Tabcorp

Finance company like Credit Corp, Cash Converter, Thorn Group

These all boast excellent balance sheet and will likely to delivered you yield for many years to come provided you
can handle price fluctuation...the weakest will be Collins Foods but I think as time pass it will get better....

 

[Muschu]

I'm likewise interested plus in shares that offer decent yield, minimal debt, reasonable stability. Not especially interested in hybrids.
Some funds that are presently at call are pretty obviously going to be hit with more interest rate cuts so will be looking for a new home.

Thanks to ROE for earlier mention of CCP.

You might like to check the charts of AFI and ARG Julia. Not conventional and rather like managed funds without all the costs and an advisor. Yield about 4% FF. Bit of a haven for us..

 

[Zedd]

You might like to check the charts of AFI and ARG Julia. Not conventional and rather like managed funds without all the costs and an advisor. Yield about 4% FF. Bit of a haven for us..

+1 AFI have been a rock solid LT, with excellent management.

 

[sydboy007]

+1 AFI have been a rock solid LT, with excellent management.

Yeah there's some decent yielding stocks, but I suppose I'm looking to "sacrifice" capital gain in favour of reasonably reliable and steady income.

I really hope we get a corporate bond market established int his country soon. I've used FIIG securities to buy bonds, but it costs around 1% to buy / sell which aint that cheap.

I'll take a high yielding bond over a hybrid any day, especially the new Basel III ones that pretty much are perpetual instruments and interest payments are discretionary. I prefer the legal obligation to pay a bonds interest or be in default.

I invested in AFI outside my SMSF and they've been a nice earner. ARG also has a decades long impressive performance.

IHD is also a decent yield play - around 6% with franking

 

[Muschu]

Hi All

I posted to this thread on my iPad last evening but must have logged out before the post was completely sent....

I think this has the potential to be a really good thread, especially for retirees, in such volatile times. There are some very interesting suggestions above and I will have a look at them all. Any further thoughts would be most welcome.

Apart from my reference to ARG and AFI all I can offer otherwise is that we have found TLS to be worth holding. These 3 stocks make up the majority of our portfolio at this time.

Rick

 

[Judd]

Yeah, every six months the dividends from AFI and ARG cover the annual overheads (rates, insurance, internet, car rego and insurance, and stuff like that) so they is pretty good from that aspect.

There are other LICs apart from these of course but I tend to stay away from those which charge a fee on funds under management plus a performance fee.

 

[Julia]

You might like to check the charts of AFI and ARG Julia. Not conventional and rather like managed funds without all the costs and an advisor. Yield about 4% FF. Bit of a haven for us..

Thanks, Rick, and others. Will have a look.
I've become a bit out of touch.

 

[sydboy007]

AYF just announced that with the cash rate drops over the last year they will be reducing the annual dividend payout to 40c a year with around 25% fully franked.

Still a decent yield in the current environment. Will be interesting to see if this impacts the price much, but am assuming most people buying into it are more for the income so are not likely to be sellers since where else are you going to put the funds to earn a ~7% yield?

 

[Muschu]

One thing that would concern me about AKY, EPX, AYF and IHD is the very low liquidity.

 

[sydboy007]

One thing that would concern me about AKY, EPX, AYF and IHD is the very low liquidity.

True. I considered that when I bought them. Certainly not for cash you might need quickly, but still OK options for money you want to provide a reasonable income on.

Still i think half the reason they don't have much activity is because most people are buying for the long term.

Only one I'm worried about is EPX. Until Quenos re-signs it's a bit risky. Fingers crossed they make an announcement soon. Hard to ignore the near 10% yield from them.

 

[Muschu]

True. I considered that when I bought them. Certainly not for cash you might need quickly, but still OK options for money you want to provide a reasonable income on.

Still i think half the reason they don't have much activity is because most people are buying for the long term.

Only one I'm worried about is EPX. Until Quenos re-signs it's a bit risky. Fingers crossed they make an announcement soon. Hard to ignore the near 10% yield from them.

So AFI and ARG may be much safer defensive "plays".. Good to see TLS do well today....

Hope the volatility ends before I do...

 

[Judd]

Julia, posters are, quite reasonably, banging on about this income share and that defensive share but I suspect you prefer to do your own research and decision making.

With that in mind, here is a link to the list of little buggers:

http://www.asx.com.au/products/managed-funds-product-list.htm

showing whether the manager is internal or external (Yuck!), the MER and if a performance fee (Yuck!) applies.

 

[sydboy007]

Julia, posters are, quite reasonably, banging on about this income share and that defensive share but I suspect you prefer to do your own research and decision making.

With that in mind, here is a link to the list of little buggers:

http://www.asx.com.au/products/managed-funds-product-list.htm

showing whether the manager is internal or external (Yuck!), the MER and if a performance fee (Yuck!) applies.

The high yield ETFs seem to have pretty reasonable MERs - around 0.3% - which i think is a reasonable price to pay fro the diversity they offer

IHD (ishares), VHY (vanguard) RDV (Russel), SYI (State Street SPDR)

I picked IHD over the others as they limit investments to a particular sector to 20% and maxium in 1 share at 4% of fund assets. They are not yielding quite as much as other ETFs, but they are not so loaded up on the bank stocks as others either.

 

[Judd]

Yeah, all good stuff to consider.

Management Expense Ratios are an interesting subject in themselves. When is an MER not an MER?

Take, for example, AFI. Internally managed. So it has directors fees and the like, i.e. essentially fixed management costs (unless they give themselves a pay rise!) So the MER can change depending on the fluctuations in the price of the share holdings.

For ETFs where there is a fixed MER, their income varies simply due to to the movement in the index. If the MER for a particular EFT is 0.3% and the index is 3,000, their cut is $9. Should the index move to 4,000, then their cut is now $12. Conversely, if the index falls, so does their income.

There are a couple of other differences I have noticed. Index funds are flow-through tax entities in that all the income received is distributed and so they do not have reserves unlike, say, AFI. It seems that when things go pear-shaped, as it is wont to do on the odd occasion, Index funds cannot dip into reserves (they have none) to maintain distributions whereas AFI and its peers can.

The other thing is that index fund managers can only take their income from income received not capital gains or franking credits which is why the investor sometimes is left with a reduced or little income but lots of franking credits which must be passed to the investor.

The other odd thing, my view only, is that I was investigating placing funds with an EFT which invested overseas. I read the PDS listed on the Australian web-site which referred me to Terms and Conditions of the principal overseas manager which is where I discovered that this index funds could allow up to one-third of it holdings to be subject to short-selling or securities lending. I thought that was a very strange thing to be allowed for an index fund so I didn't go ahead with it.

The above is just stuff which I have found interesting in my journey. Not making any judgement. I have funds with both Index and LICs. I'm simply interested is some matters.

 

[sydboy007]

I use FIGG securities to purchase bonds. They now allow the original 500K parcels to be split down to either 50K or 10K for those available to retail investors.

They have some pretty decent inflation linked bonds providing up to 4% + CPI

They also have inflation adjusted annuities which is like being on the band side of a mortgage where each payment you receive involves increasing repayments of capital so by the maturity payment they have repair all the interest and capital. Provides a higher level of income stream.

Just received an email from FIIG highlighting an annuity they have reasonable volume access to.


JEM NSW Schools II Pty Ltd 28/11/2035 Senior Debt yield 6.36%
· Available in parcel sizes of just $10,000.
· Provides a return of CPI + 3.85%, which compares favourably to with what is available in the retail annuity market.
· Invest $95,771 and receive $191,065 back! (assumes CPI = 2.50%, the mid-point of the Reserve Bank target range).
· The bond is issued by a Public Private Partnership (PPP) to fund the construction and maintenance of 11 schools in NSW. Revenue streams come from the AAA rated NSW government.
· The bond is considered very low risk, as reflected by its investment grade credit rating.
· There is no refinance risk.
· NSW Schools represents the outstanding value in the Indexed Annuity space.

 

[sinner]

I wish these offerings were listed on the ASX like they are in the US!

 

[Julia]

One thing that would concern me about AKY, EPX, AYF and IHD is the very low liquidity.

Agree. I won't touch anything with low liquidity.

Julia, posters are, quite reasonably, banging on about this income share and that defensive share but I suspect you prefer to do your own research and decision making.

With that in mind, here is a link to the list of little buggers:

http://www.asx.com.au/products/managed-funds-product-list.htm

showing whether the manager is internal or external (Yuck!), the MER and if a performance fee (Yuck!) applies.

Thanks, Judd. You're correct. I'm not attracted to anything where effectively someone else is deciding where my money goes. AFI and ARG look OK, I guess.
Back in early 1987 I put some funds from an IP sale into a managed fund. Had never used one before.
The returns were mediocre, but I was unhappy about their sloppy administration, so pulled it out really just for that reason. Just escaped the crash. Not through any cleverness on my part, just sheer good luck.
It was a lesson I've never forgotten. Too easy for these organisations to put a freeze on withdrawals.
I always want to be in control.