Generating income in a low interest rate world

Papers presented at the 30 October 2015 'Generating income in a low interest rate world', one-day seminar held at Sydney, are available as indicated by the links in the program below.

Over the past few years, investors have seen their return from cash and term deposits drop from 8 percent to less than 3 percent, with predictions for even lower interest rates in the future.

A question on many retirees’ minds is “Where can I invest to replace safe and reliable cash deposits as a source of income?”  How risky are the alternatives?  How will returns vary with future inflation or deflation? 

This one-day seminar will address a range of issues related to income –understanding risk, long- and short-term goals, and the role of debt securities (bonds), term deposits and cash, hybrids, real estate, shares and annuities, in generating income. 

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Shares, high-yield ETFs, LICs and managed funds           

Kathryn Young (Morningstar)

With historically low interest rates and persistently low bond yields, shares have become very attractive for their potential to offer income through dividends alongside capital growth.Kathryn will describe the many ways to implement a steady and reliable dividend strategy – through direct shares, managed funds, ETFs and LICs – including the advantages and pitfalls of each.

  Presentation

Debt securities            

Graham Hand (Cuffelinks)

Graham will explore a wide range of alternatives to traditional cash and term deposits, including fixed and floating rate bonds, listed and unlisted securities, inflation-linked bonds and annuities, managed bond funds and bond ETFs and investment-grade and unrated corporate and government bonds, including foreign currency.The emphasis will be on securities that can be readily accessed by individual investors and SMSFs rather than institutions, and their role in a diversified portfolio.

 Presentation 

Hybrid securities                   

Campbell Dawson (Elstree Investment Management)

Falling between conventional equities and bonds in terms of risk and return, a broad array of hybrid securities have been issued in recent years.  Hybrids include subordinated notes, capital notes and convertible preference shares.What are the risks and returns of the hybrid sector and how does that differ from conventional fixed interest and equity securities? How do they perform in normal times and how should they perform under stressed economic and market conditions? Do they really offer “equity risk and fixed interest return” or is it the other way round?Campbell will describe how an investor can create optimal portfolios and what role can hybrids play in a diversified income portfolio.

Presentation

Property           

Adrian Harrington (Folkestone)

Property as an asset class offers a wide range of investment options that extend beyond residential property. The property menu includes non-residential (office, retail, industrial), real estate related social infrastructure (childcare, health & medical, seniors living), listed A-REITs, and debt/mortgage securities.Adrian Harrington, Head of Funds Management at Folkestone, will examine various ways to generate yield across the property menu, the describe drivers of returns, and discuss the prospects for various classes of property investments in the year ahead.

Presentation

Annuities           

Jeremy Cooper (Challenger)

Annuities may be used to provide a secure layer of income to supplement other income sources such as the Age Pension. Annuities provide the certainty of guaranteed income that won’t run out, regardless of movements in the stock and bond markets. The key types of annuities in the Australian market are term annuities (similar to term deposits) and lifetime annuities that provide income for life, however long that might be.The price of annuities is based on bank swap rates, and incorporate expected long-term changes in interest rates. Lifetime annuities can be considered partly as an insurance product, ie insuring against longevity risk, the risk of outliving your savings. Recommendation 11 of the 2014 Financial System Inquiry called for a Comprehensive Income Product for Retirement, which would include longevity risk pooling products like lifetime annuities. A response from the Government on this is expected shortly.Treasury is also
working on a policy response to a proposal to remove regulatory obstacles to income stream products such as deferred lifetime annuities; a form of pure longevity insurance, which is much awaited in Australia.

Presentation

Why bonds?  A personal journey        

Graeme Bottrill (AIA President)

In this presentation, Graeme Bottrill, an AIA member for nine years, will describe why he first became interested in bonds and why he rejected other asset classes at that time.Graeme will describe how he started with bonds, what he has learnt along the way and how he currently invests.Using records of actual purchases and sales, Graeme will present details of the relevant performance of this portfolio.  All will be revealed – the good the bad and the ugly.

Presentation