Although interest rates have rebounded from last years low, the current environment is still challenging for investors that rely on interest income. In a low interest rate environment the expected returns for all investments is lowered, meaning that more risk is required to generate the same level of income. The problem with adopting a higher risk approach is the increasing potential for capital losses, which could be more crippling than having to deal with lower interest income. Diversification is the key to mitigating this outcome, and is the reason why we created the Income Fund. We think that having a small but well diversified allocation to non-traditional income producing assets can provide a little bit extra return without taking a lot more risk.
How the QuayStreet Income Fund differs to a bank deposit?
The QuayStreet Income Fund is well suited to investors seeking regular income from their investment portfolio, making it a potential alternative to bank deposits.
- The return objective of the Income Fund is to provide a level of income that is comparable to interest rates on bank deposits but also preserve capital over the medium term relative to inflation.
- There is the opportunity to earn higher returns than deposits; however it is important to note that return objective may not be met so there is an additional level of risk.
- The other important difference is the investment can be withdrawn at any time at zero cost whereas many deposits require a fixed term and may charge break fees.
How the QuayStreet Income Fund differs from other investment funds?
There are a number of other investment products out there with the words “Income” or “Yield” in the title that may have very different levels of risk. The most likely source of risk is exposure to equity securities or higher yielding bonds in the Fund and this allocation can vary widely.
The QuayStreet Income Fund has a maximum exposure to Australasian equity of 30% with a target exposure of 10% and fits within a conservative risk category. This does not mean that there is no risk but it will be considerably less than a fund targeting dividend yields that could have 100% allocation to the share market.
The Fund will target assets (including the Australian equity assets) that can provide a sustainable level of income with low levels of volatility in total return. The investments are spread across multiple asset types, geographies, markets, issuers, sectors and maturities to provide a higher level of diversification.