Van Eck has released a new exchange-traded fund (ETF) model portfolio designed to provide investors with a more robust income stream in the current low interest rate environment.
The strategic asset allocation the portfolio employs will be based on research and recommendations from Lonsec and Van Eck is looking to generate an annual return of the consumer price index plus 2 per cent.
To achieve this return goal, the investment manager has given greater weighting to Australian equities, compared to its other portfolios, due to the historically higher dividends issued from the sector, as well as the associated franking credits.
A greater portfolio weighting is also being given to higher-yielding corporate bonds and global equities.
According to Van Eck managing director Arian Neiron, the asset allocation is the key to generating greater income given the current economic backdrop.
“Asset allocation will be key in helping investors to achieve a decent income return because it is no longer going to come from cash. With interest rates at historic lows, Australia has caught up to the rest of the world in having ultra-low interest rates,” Neiron noted.
“That situation is not likely to reverse anytime soon, with another official rate cut expected in the next few months, so investors seeking income will need to allocate more to income-producing equities and fixed income securities to achieve a decent return.”
He pointed out investments in cash and government bonds will not provide the income individuals need in their retirement and this may encourage them into a suboptimal strategy of allocating their savings to riskier asset classes.
“VanEck’s new Income ETF Model Portfolio supports financial advisers in creating a simple portfolio of ETFs targeting income for retiree clients,” he said.
He noted certain dynamics in the Australian economy, such as high household-debt-to-income and house-prices-to-income ratios, would mean low interest rates are likely to remain for some time.