Auckland-headquartered boutique investment firm NZ Funds has rolled out a new product tapping into to the growing demand for regular income as term deposit returns dry up.
The just-released NZ Funds ‘Income Generator’ product has a target average annual return of 4-7 per cent over a five-year horizon sourced mainly from high-dividend Australasian stocks with a hedged options overlay.
According to the Income Generator statement of investment policies and objectives (SIPO), the new fund would “purchase predominantly dividend paying shares and buy put options to limit the downside”.
“To fund the purchase of put options, the Portfolio may write call options,” the SIPO says. “The levels at which the options are implemented will be dependent on market conditions and NZ Funds’ investment view.”
While the NZ Funds product would have target put options against 100 per cent of the portfolio share-holdings, the “hedging level may vary over the course of an economic cycle dependent on market conditions and NZ Funds’ investment view”.
At launch, NZ Funds would manage the Income Generator money in-house although it retains the right to use external managers in a wide SIPO brief that also allows “alternative assets (including digital assets, such as cryptocurrencies)”.
The fund falls mid-range in the standard risk indicator with a ranking of 4 against the maximum of 7.
NZ Funds estimates fees for the new product, which include a performance component, would be 1.65 per cent in the first year of operation, falling to 1.25 per cent by year three.
The portfolio invests via an underlying NZ Funds wholesale trust that is benchmarked against the Credit Suisse AllHedge Long/Short Equity Index.
Headed by Michael Lang, NZ Funds has more than $1 billion under management through a range of portfolio structures including an almost $300 million KiwiSaver scheme.
As returns on term deposits plummet below 2 per cent, more fund managers are tailoring products to cater to investor demand for income. For instance, in July Nikko Asset Management repackaged its long-standing income fund under with a headline annualised distribution rate of 3 per cent after remixing the underlying asset allocation.