Case Study - DNR Capital Australian Equities Income Fund
DNR Capital has recently provided access to its Australian equities income strategy via the launch of an unlisted fund – the DNR Capital Australian Equities Income Fund. Portfolio manager Scott Kelly spoke to Industry Moves about what goes into a successful launch and why investors now need to think differently about generating income.
What goes into launching a new product?
Generally the main thing you need to ensure is that you've got a compelling investment offering. The product structure it’s housed in follows from there. Its got to be critical in that it solves an investor problem – low interest rates, long-term requirement for capital to match retirement liabilities, short-term requirement for income. That establishes that there is a market for that product.
Why did you decide to launch this version of the strategy?
The backdrop of course is low interest rates and more retirees entering that phase of life. Our view is that there is a real lack of alternatives. We think the backdrop for equity income strategies is pretty favourable right now. We’ve obviously experienced quite strong demand in the SMA space for this product. The other thing [behind not launching previously] was the fear of a Labor government and their [proposed] franking policy change.
How do you research market opportunities?
We’re very close with our existing clients and the feedback from them was very clear. The other feedback that was given was there are very few managers out there that are concentrating on this space. We were always being asked when we were launching a unitised version of the strategy.
What challenges did you face and how were they overcome?
It was relatively straightforward. We launched this product in March [to existing clients] in the midst of COVID-19 and that was interesting. At the end of the day all we do is focus on our process. We simply maintained our focus, and it’s important investors are comfortable with how these strategies work during different cycles and at times of market stress.
How did you decide on service providers?
Our current providers are selected as part of our process. We have a good working relationship with them, we do undertake regular reviews, and they continue to work well.
Can you explain the fee structure?
The fee structure is 90 basis points inclusive of GST. We’re trying to deliver capital growth to offset the fee and the additional income we generate is the cream on top for investors.
How is income investing changing?
I think the space is really interesting. Compare CBA to REA Group. CBA paid a dividend of $2.98, which was the same as what it paid 10 years ago. REA paid you a dividend of $1.10, compared to 16c 10 years ago. It’s just an example of how that focus on headline yield can lead you down the wrong path and not deliver the best income.