The Legg Mason Martin Currie Equity Income Fund is designed to deliver an attractive and sustainable income from Australian companies that have both quality business models and proven track records of paying dividends. The objective is to grow income above inflation and it currently has a fully franked forecast yield of 7%1 for the next 12 months.
Below, CIO and Portfolio Manager, Reece Birtles gives an overview of the Fund and how it had been tailored to deliver an attractive, tax-effective and low-volatility income stream.
Chief Investment Officer and Portfolio Manager
Martin Currie Australia
The Fund has both delivered strong income and capital returns for investors. Performance has been driven by the deep insights of our fundamental research team alongside a well-structured investment process. Since inception in 2011, the Fund has provided a franked income return of greater than 8.6% p.a.2, and grown this income stream ahead of inflation. The strong growth in this income stream has helped deliver an attractive total return, with a franked return of 13.3% p.a. after fees over this same time frame.2
Launched in 2010, our suite of income solutions focuses on the unique needs of clients as they enter retirement and this solution based approach to product design has really resonated with our clients.
Our aim is to help replace the regular income generated during employment, improve the standard of living in retirement and protect against inflation.
Each aspect of the Fund was designed specifically to:
2 Past performance is not a guide to future returns. The franked total return over 5 years period is 15.2% after fees as at 31 December 2017.
Martin Currie is unique in managing income strategies from an income viewpoint. We see the real problem should not be about capital volatility or tracking error relative to a pre-determined benchmark, but income volatility or stability, which is a proxy for the risk of impaired living standards.
We are all aware that equities can be a volatile place to invest when seeking capital growth. However, for retirees, we have found that equities offer comparatively low-income volatility. That’s because company dividends are generally more stable than share prices, and it is the dividend that matters most to an income investor.
We have thought carefully about how this Fund can provide a ‘sufficient income for life’. For example:
The overarching belief for all our income-focused strategies is that companies that have solid earnings can sustain dividend pay-outs and are likely to be less volatile than other shares. Through our research our objective is to identify those companies that can continue paying dividends and provide regular income, even in periods of market stress.
A proprietary research edge comes from our team of expert analysts. Our team of analysts spends considerable time establishing a deep understanding of each stock’s Quality, Value, Direction and Sustainable Dividend metrics from both a fundamental and quantitative perspective. In contrast to any one single factor, we believe that the powerful combination of these four different investment pillars can lead to stronger income and capital returns over the long-term.
For inclusion in our portfolio, we are looking for stocks that have high-quality business models, high barriers to entry, low levels of gearing and reasonable return on invested capital which we believe can pay sustainable dividends.
We are now 18 months into the global economic expansion and capacity utilisation and employment are tightening which is increasing pricing power and ultimately inflation. This economic environment indicates double-digit earnings per share (EPS) growth for global equities.
Given the global outlook, Australian bonds either need to also rise with stronger growth and commodity prices or the Australian dollar will fall. Currently growth is winning. The Australian economic cycle is running behind the US recovery. The Phillips curve is not dead, it just needs a lower unemployment rate (~5%) to find the inflection point for inflation & wages.
Australian equities are at an earlier stage of the EPS acceleration and carry less valuation risk than global equities. Equities are no longer cheap on long-run measures, but valuation is not yet a barrier to equity market returns in a double-digit EPS growth world.
Cyclicals and value stocks that have been more economically sensitive post GFC are likely to perform well but we no longer believe high risk value offers an attractive reward/risk. Low Volatility and High Growth stocks are likely to suffer in this environment as growth is less scarce and they are more impacted by increasing discount rates from higher bond yields. Accelerating EPS growth will also support good Direction stocks.
Martin Currie Australia is an Australian active equity specialist that offers a range of equity based accumulation and income strategies, as well as multi-sector portfolios. Martin Currie Australia has a history that dates back to 1954, and began investing in Australian equities in 1982 with the launch of the Australian Core Equity portfolio. Since that time, the firm’s product and investment capabilities have grown to include seven equity trusts, three multi-sector trusts, as well as tailored portfolios for a growing number of institutional clients across a common investment research platform.
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ADVISER & CLIENT SERVICES
|General Enquiries:||Phone:1800 679 541
|Melbourne Office:||Level 47, 120 Collins Street|
Melbourne VIC 3000
PO Box 24011
Melbourne VIC 3001
|Sydney Office||Level 25, 88 Phillip Street
Sydney NSW 2000
Past performance is not a guide to future returns.
All funds issued by Legg Mason Asset Management Australia Ltd, (“Legg Mason”) (ABN 76 004 835 849 AFSL 240827). Martin Currie Australia is a division within Legg Mason. Before making an investment decision you should read the Product Disclosure Statements (“PDS") for the Legg Mason Martin Currie Equity Income Fund (ARSN 150 751 821) carefully and you need to consider, with or without too assistance of a financial advisor, whether such an investment is appropriate in light of your particular investment needs, objectives and financial circumstances. The PDS can be obtained at www.leggmason.com.au or on 1800 679 541. The product has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person. Neither Legg Mason, nor any of its related parties guarantees any performance or the return of capital invested. Past performance is not necessarily indicative of future performance. Investments ae subject to risks, including, but not limited to, possible delays in payments and loss of income or capital invested.
1 As at December 2017, the yield forecast for the next 12 months is calculated using the weighted average of broker consensus forecasts of each portfolio holding and research conducted by Legg Mason Asset Management Australia Limited and is gross of fees. Neither the yield forecasts nor past performance is a guarantee of future results.
2 Performance number is as at 31 December 2017. Source: Martin Currie Australia; as at 31 December 2017. Data calculated for the representative Legg Mason Martin Currie Equity Income account in A$. Franked income return is calculated in gross of management fee. Inception Date: 1 July 2011. Assumes zero percent tax rate and full franking benefits realised in tax return. The franked total return over 5 years period is 15.2% after fees as at 31 December 2017.
3 The Lonsec Rating (assigned October 2017) presented in this document is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445. The Rating is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product(s). Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold Legg Mason Asset Management product(s), and you should seek independent financial advice before investing in this product(s). The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document(s) following publication. Lonsec receives a fee from the Fund Manager for researching the product(s) using comprehensive and objective criteria. For further information regarding Lonsec’s Ratings methodology, please refer to our website at: http://www.lonsecresearch.com.au/research-solutions/our-ratings
4 The Zenith Investment Partners (“Zenith”) Australian Financial Services License No. 226872 rating (Legg Mason Martin Currie Equity Income Fund assigned June 2017) referred to in this document is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith’s™ methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at http://www.zenithpartners.com.au/RegulatoryGuidelines. As at 31 August 2014. Past performance is not indicative of future performance.
5 Source: Morningstar Direct. Ranked in the first quartile in its peer group among 325 funds within Morningstar Equity Australia Large Blend category as at 31 December 2017.
© 2017 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice or ‘class service’ have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 (“ASXO”).
The Morningstar Rating is an assessment of a fund’s past performance – based on both return and risk – which shows how similar investments compare with their competitors. A high rating alone is insufficient basis for an investment decision. Legg Mason Martin Currie Equity Income Fund received a 5-star Morningstar Rating™ as at 31 December 2017.