We aim to deliver a smoother returns profile and higher income than the broader share market by using fundamental stock analysis, additional market intelligence and an active options strategy. The strategy aims to achieve these near-term outcomes without compromising long term total return objectives.
Equity Income - The benefits of long-term equity investing with smoother returns and an additional source of income
- Seeks to generate returns from fundamental stock insights across a broad universe of stocks, regardless of the dividend yield of each stock, and an active options strategy
- Options strategy extends fundamental insights and seeks to provide a smoother return profile than the broader share market (lower volatility) and a higher income stream over the long term
- Highly experienced team with a 13 year track record
Why Equity Income
Our Equity Income strategy addresses client demand from investors who have a long-term investment horizon, but are seeking a more conservative exposure for their equity portfolios in order to provide a better balance between the need for higher income, lower volatility and attractive total returns.
Investors near or in retirement, defined benefit superannuation schemes, charities, lifecycle allocators and insurers are examples of investors who can benefit from the added layer of risk management beyond what can be delivered through traditional asset allocation alone.
How we do it
We believe our approach has the potential to deliver better long-term returns with lower volatility compared to traditional income strategies. Traditional strategies screen for high yielding stocks, but as a result potentially introduce concentration and other risks to the portfolio.
Our investment process begins with actively selecting stocks and building the portfolio. Bottom-up, fundamental stock analysis is utilised to identify the best opportunities at any point in the market cycle from the full, broad universe of stocks, regardless of the dividend yield of each stock. Using this analysis, overlaid with additional market intelligence, we construct a portfolio of 30 to 40 stocks.
Options are used to more actively reflect the investment view and insights the team has on each stock in the portfolio. Implementing an option position on a particular stock generates income and provides a downside cushion to partly offset any decline in the share price, with the trade-off being a capping of the potential upside in the share price. By extending the analyst’s research to selectively implement option positions on the underlying stocks, the team seeks to deliver the long-term requirements for goals-based investors regardless of economic/market cycles, investment fads/themes, style headwinds or yield volatility.
Using this approach provides investors with a way to invest in equities that can address the competing and inter-related investor objectives for income and smoother long-term returns.
The team is led by Rudi Minbatiwala, who established the strategy with Senior Portfolio Manager Jason Moodie in 2005, and also includes Portfolio Manager Marlon Chan. This team of three options and portfolio management specialists based in Sydney has an average 16 years of experience and have been managing equity income funds together for over a decade.
This specialist experience is enhanced by our ability to draw on the stock insights from equity analysts across the business. This partnership approach gives us access to the best ideas from our diverse and highly skilled investment teams and facilitates the effective delivery of tailored objective-based equity solutions to our clients.
Our team was established in 2005 as part of a larger Australian Equities team and was made a stand-alone strategy in 2018. The equity income capability was developed in 2005 as one half of a multi asset income strategy designed for conservative investors with a low tolerance for material loss.
As part of managing this strategy, the team undertook extensive in-house research that identified significant market inefficiencies in the way investors typically address the three broad needs of income, volatility and total returns. A stand-alone Australian equity income fund was launched in early 2008 as a better way to address these investor requirements over the long term.
Since then, our capability has continued to evolve with major developments including an over-the-counter option capability, development of the in-house Optima system to manage equity option portfolios, and a global equity options capability.
The team offers an adaptable solution with a consistent and disciplined process that can be tailored to different risk-adjusted returns, income and volatility investment objectives.
Our corporate RI strategy is based upon three strategic pillars of quality, stewardship and engagement.
The Equity Income team works in partnership with other investment teams within First Sentier Investors to deliver objectives-based investment strategies to our clients. As part of this approach, the team draws upon the analyst research from various investment teams as inputs into the stock selection process. This will usually incorporate the identification of any relevant ESG issues identified by the teams, which is typically based on a rigorous company meeting program.
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