Research House Lonsec has awarded a ‘Highly Recommended’ rating to the Legg Mason Martin Currie Equity Income Trust in its review of Australian equity – income focused funds.
The rating upgrade was underpinned by the diversification and experience of the fund manager Martin Currie Australia, an affiliate of Legg Mason. Lonsec stated “the product is more diversified than most peers at both a stock and a sector level. Lonsec believes the Trust benefits from a well thought out philosophy and investment approach specifically targeting retirees.”
The report is timely in that it co-incides with the Federal’s government response to the Financial System Inquiry, which highlights the need to develop new income stream products to better protect retirees from longevity and other risks.
The fund was launched in 2010 and invests in approximately 50 ASX-listed companies. It aims to provide a growing income stream with in-built inflation protection from increasing dividends and tax effectiveness through franking that is optimised for 0% taxpayers. One of the most unique features of the fund is a special ‘fifth quarter distribution’ that re-invests annual capital gains back into the fund to further grow the capital base and generate more income over time, an unusual feature in the Australian market.
In a year where equity income funds were challenged due to market volatility, the Legg Mason Martin Currie Equity Income Trust has stood out as the number one performer in the Lonsec equity income peer group in the 12 months to September 2015. The fund returned 5.47% after fees (plus 1.9% franking credit), compared to the peer group average of -0.9% in the backdrop of an overall sharemarket decline of 0.7%. A number of funds in this peer group include protective overlays commonly in the form of buy write options.
The fund’s strong performance and low drawdown in this testing period reflects the fund’s low risk design according to Reece Birtles Chief Investment Officer of Martin Currie Australia. “We built the fund to address retiree longevity risk and help avoid the need to draw down on capital through retirement. We believe that a well-diversified portfolio of quality companies that can grow their dividends best meets this objective, without the need for costly protective overlays which can potentially impact returns and duplicate the diversification benefits from other asset classes.”
The equity income strategy forms part of Martin Currie Australia’s $2.9 billion income solutions book which also includes the real income and multi asset retirement income funds that Legg Mason distributes to the retail market.
Beau Titchkosky, Legg Mason Australia Head of Sales said “We are seeing stronger government support and increased demand for attractive income sources with sensible risk management and we believe the Lonsec rating is solid endorsement of our capabilities in this space.”
The fund is available on the CFS and PowerWrap platforms (badged versions), mFund, SIV and SMA (with an increasing number of private wealth firms).
