The $13 billion multi-manager, ipac, has built an income fund spanning equity and credit markets for the financial planning arm of its parent, Axa Asia Pacific, and received $200 million in seed funding.
In building the product, dubbed the ‘income generator’, ipac assigned a new Australian equities mandate to quantitative equity manager Ankura Capital for roughly $33 million, and will also use Goldman Sachs Asset Management’s pooled hybrids fund.
The product is designed to fund the day-to-day consumption needs of retirees. As such, it does not primarily seek capital growth, but stocks and bonds that offer regular income streams that keep pace with inflation. There is also a tilt towards hybrids.
It follows that about 30 per cent of the portfolio is allocated to Australian shares, which provide the benefit of dividend imputation. Jeff Rogers, chief investment officer of ipac, said Ankura and Legg Mason Australian Equities, which also manages half of ipac’s domestic equities exposure, did not have to hold positions in the largest companies.
“For example, if BHP doesn’t have decent yields, don’t worry about the fact that you’re underweight against the benchmark,” Rogers said.
“We want the client to get above-market yields they can live off, and the capital keeps accruing at about the rate of inflation.”
He acknowledged that this would be difficult during economic downturns, when companies were prone to cutting dividends, but countered with the observation that inflation often fell during tough times as well.
Elsewhere in the portfolio, Australian listed property, global equities and global infrastructure each receive 5 per cent allocations, while 43 per cent is invested in Australian nominal bonds, 10 per cent in Australian inflation-linked bonds and 2 per cent in hybrid securities.
The nominal bonds typically have maturities between zero and five years – a good compromise between stability of returns and volatility, Rogers said – and the exposure to ‘linkers’ was warranted to help mitigate the impact of inflation upon returns.
Macquarie, which already runs some fixed income money for other ipac products, was appointed to manage the bond exposures, while Epoch was hired to run global equities. The Australian equities managers are also responsible for the listed property exposure, and Vanguard Investments for global infrastructure.
The product will make a monthly distribution to investors, and at the end of each financial year make an additional distribution, which will be reinvested in client’s accounts.