The importance of capital preservation and diversification for individuals in retirement has been emphasised by the federal opposition’s proposal to change the treatment of imputation credits, an investment manager has said.
DNR Capital Australian equities income portfolio manager Scott Kelly believes Labor’s proposed policy will penalise domestic equity holders specifically compared to those individuals invested in other asset classes.
“We believe this highlights that income-seeking investors need to look beyond any single asset class and should specifically consider further diversification within Australian equities with strategies focused on tax-advantaged, reliable and growing income generation – which goes beyond the usual suspects,” Kelly said.
“Before investors flock toward higher-risk asset classes that, in our opinion, have stretched valuations, for example, unlisted and listed property, infrastructure and utilities, they could consider the alternatives for generating income.”
To this end, Kelly recommended certain equities deserved of renewed consideration when in the search for yield.
“We believe local companies that fit this bill include Woolworths, Suncorp, Brambles and IPH Limited and are holding them in our portfolio in preference to bond proxies and the banks,” he said.
He described the current situation of investors placing a heavy reliance on a small number of stocks motivated by the distribution of franked dividends as being flawed from a capital perspective.
“Traditionally, investors looking for yield in Australian equities have concentrated their exposure to the big banks and Telstra, which contribute around 40 per cent of the ASX 200 dividends paid,” he said.
“While investors may have received a reasonable income, and franking benefits, from these investments over the last 10 years, capital has been eroded.”
