CONTRIBUTORS
Reece Birtles
Chief Investment Officer, Martin Currie Australia
The COVID-19-induced shutdown of the Australian economy exacerbated the downward trend of interest rates to record lows, and the downturn also had a bigger impact on company revenues, earnings and therefore dividends than any prior financial crisis. For retirees who depended on income from their investments to maintain their living standard throughout retirement, this was a dire situation.
Martin Currie’s new white paper, authored by Reece Birtles, revisits the benefit of building retirement options with a focus on “sufficient income for life” and why a focus on equity-based investment solutions that aim to meet a client’s income needs are more important than ever in a post COVID-19 world.
In the paper, we show:
- There is a clear disconnect between our understanding of sufficient income for retirees’ needs, and typical defensive portfolios for retirement that are based on the total risk/total return theory.
- Our “sufficient income for life” philosophy focuses on achieving a high and stable franked dollar income stream to support annual expenses; Income growth for inflation protection; capital growth to manage longevity risk; and diversified growth exposures (across a full asset allocation) to reduce income sequencing risk.
- Instead of capital or total volatility as a standard risk measure, the concept of income stability is a better proxy for the risk of impaired living standards for retirees. This leads to a greater focus on growth assets in the retirement mix.
- Retirees require a reliable income stream to replace the wages that they had received when they were working, so it is more important to focus on the actual dollar income generated over time, rather than a headline yield percentage.
- “Sufficient income for life”-focused research and portfolio construction methodologies include: a focus on Sustainable Dividends and Quality, benchmark unaware construction, maximising franking credits, using Australian domiciled assets, structuring portfolios to be correlated with the drivers of retirement income needs, and avoiding unnecessary capital or yield impairment.
- Despite the short-term impacts of COVID-19 on the dividend paying ability for Australia companies in 2020, our specifically designed retirement income strategies have performed in line with their income objectives and that our income focus has not been compromised by the effects of 2020.
- Our research reinforces why retirement products need to be built to specifically provide retirees with the characteristics of a “sufficient income for life”.
- Our strategies are well placed to provide retirees with a “sufficient income for life” relative to income peers now and into the future, especially as inflation begins to pick up as the COVID-19 recovery continues.
Read the full paper: HERE
IMPORTANT INFORMATION
Past performance is not a guide to future returns.
The investment vehicles shown may have different risk profiles and a direct comparison may not be appropriate.
This publication is issued for information purposes only and not investment or financial product advice. It expresses no views as to the suitability of the services or other matters described herein to the individual circumstances, objectives, financial situation, or needs of any recipient. You should assess whether the information is appropriate for you and consider obtaining independent taxation, legal, financial or other professional advice before making an investment decision.
Issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 849 AFSL 240827) which is a part of Franklin Resources, Inc. Any reference to ‘Legg Mason Australia’ is a reference to Legg Mason Asset Management Australia Limited. Martin Currie Australia is part of Legg Mason Australia Limited. Legg Mason Australia is the responsible entity of the Legg Mason Martin Currie Equity Income Fund (ARSN 150 751 821)(Fund), the Legg Mason Martin Currie Real Income Fund (ARSN 146 910 349) (Fund), the Legg Mason Martin Currie Diversified Income Fund (ARSN 169 461 116)(Fund) Martin Currie Australia is the fund manager of the Funds. Before making an investment decision you should read the Product Disclosure Statement (PDS) for the Fund carefully and you need to consider, with or without the assistance of a financial advisor, whether such an investment is appropriate in light of your particular investment needs, objectives and financial circumstances. The PDS is available and can be obtained by contacting Legg Mason Australia on 1800 679 541 or at www.leggmason.com.au. The information in this paper is of a general nature only and is not intended to be, and is not, a complete or definitive statement of the matters described in it.
The information does not constitute specific investment advice and does not include recommendations on any particular securities. Legg Mason Australia nor any of its related parties, guarantee the repayment of capital or performance of any of the Legg Mason trusts referred to in this document. Although statements of fact in this presentation have been obtained from and are based upon sources Legg Mason Australia believe to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed.