Listed investment trust attracts SMSFs

SMSF advisers and trustees have responded positively to the Gryphon Capital Income Trust (GCI), which is filling a gap in the market for a heightened return to cash without placing excessive capital at risk compared to alternatives.

The listed investment trust seeks to deliver a stable and predictable monthly income by investing in a diversified portfolio of secured fixed income bonds, with the subset being residential mortgage-backed securities and asset-backed securities in an Australian Securities Exchange-listed vehicle.

The target yield is the Reserve Bank of Australia cash rate plus 3.5 per cent.

Last month, the broker bidding book exceeded the $100 million minimum, with the maximum raising set at $350 million. The general offer closed on 2 May.

“When people invest in bonds, it’s all about their capital preservation or the return of your capital, and residential mortgage-backed securities have one of the strongest track records in terms of performance in the market for Australia; in terms of its default and losses that it’s experienced, it’s been very low,” GCI co-founder and chief investment officer Ashley Burtenshaw told selfmanagedsuper.

“So for the first time this institutional product is now able to be delivered to the retail investor because cash rates are going down to such low levels, so investors are looking for alternatives to their cash holdings, but also an alternative to those instruments they’ll typically use, so equity and equity-like products.

“There’s not been a huge amount of alternatives in this space for the SMSF investor and we want to give them an alternative, which has been available only to institutional investors.

“Why it fits well with SMSF investors is because when an SMSF is allocating for his or her retirement, they’re looking for non-correlated returns to the large proportion of their portfolio.”

GCI’s low correlation means that if equity markets or equity-like securities start selling off, the investment will be less volatile and therefore generate more certain income, Burtenshaw said.

“What we don’t want is SMSF investors using equity and equity-like securities for income as well as growth – it needs to be in the right bucket, which is the income bucket,” he said.

He said discussions with advisers revealed they were looking for diversification within their income offering.

“A lot of our meetings have been with financial planners who are looking to put this in with their model portfolios as one of the key objectives for SMSFs is how they’re going to generate income,” he noted.

“So GCI is a consideration that a lot of financial planners around the country are looking to provide as part of another offering that’s in their income portion of their model portfolios.

“They believe this fits the bill and they like the capital preservation from an income perspective.”

However, one challenge for advisers was addressing the education aspect as many were unfamiliar with the asset class, he added.

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