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How to boost your income

Christine St Anne
Thursday, June 02, 2016

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by Christine St Anne

Product Review

With cash rates at all-time lows, income-seeking investors will need to rethink their exposure to traditional sources of income such as term deposits.

Investing in fixed income assets such as bonds can access alternative sources of income. There are even a number of high-yield bond funds in the market that give investors that extra income kick. One example is the Supervised Global Income Fund.

Who is Supervised Investments?

Supervised Investments was established in 1999 by David Constable who has over 60 years of experience in financial markets. The firm’s first product was an Australian-based international equities fund, which was launched in 2007. Following the global financial crisis, the business saw an opportunity and expanded its investments into debt securities. Headed by debt market specialist Philip Carden, the firm set up the Supervised Global Income Fund (previously Supervised High Yield Fund) in April 2009. The fund has managed to achieve a 7-year track record of outperformance. Phil has 35 years’ experience managing bond funds here in Australia and overseas.

What are fixed income assets?

Traditional fixed-income assets include bonds and high-quality, investment-grade credit, that is, corporate bonds. Fixed-income managers can also invest in higher-yielding assets such as high-yield debt, syndicated loans and hybrids. Fixed-income funds can invest in all of the above mentioned bonds with the obvious focus on generating income for investors. These funds do not invest in shares or any other asset class apart from bonds.

Supervised Global Income Fund

The Supervised Global Income Fund invests in both the domestic and global debt markets. The Fund can invest in corporate bonds, mortgage and asset-based securities, bank bills, commercial paper, interest-rate markets and hybrid securities.

Key details are as follows:

Strengths

In terms of its performance, the Fund has achieved positive monthly returns and an annual return of 9.39%* since inception (1/4/2009), net of fees. The Fund also has a very low correlation to the ASX 200. This means the Fund’s returns are positive when the ASX returns are negative. While the Fund’s returns may not be as high when the ASX200 outperforms, this low correlation to the Australian equity market brings true diversification benefits to investors.

As mentioned previously, the Fund’s lead manager Philip Carden has over 35 years’ experience. His extensive background and expertise has contributed to the Fund’s performance and risk record.

Weaknesses

The Fund’s focus on protecting investors’ capital and the nature of fixed-income can lead to underperformance compared with rising equity markets. The Fund had negative performance including two negative months in January 2016 and April 2009 of -0.51% and -0.12% respectively, but this has corresponded to 98% of positive monthly performance since inception.

There is key person risk in Philip Carden. This risk would impact the ongoing management of the portfolio rather than the ability of the Investment Manager to wind down in the event the Fund needs to be liquidated in his absence.

Another risk for investors is the liquidity of the underlying assets. While these assets can be liquidated, they are not traded on-market.

Bottom line

The Supervised Global Income Fund will suit investors looking for extra income but expect lower risk than other income producing assets. Investors do need to understand that the Fund does not trade in highly liquid securities, but its focus on capital protection ensures a prudent approach to investing in higher yielding securities.

Important information: This content has been prepared without taking account the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should consider the appropriateness of the information in regards to their circumstances.

Published: Thursday, June 02, 2016


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