In a low interest rate environment, investors are increasingly looking beyond cash to other sources of income in their investment portfolios.
BetaShares has a range of exchange-traded products which aim to provide attractive income, either by providing access to fixed income, or by giving investors exposure to income from shares.
Equity income ETFs and exchange-traded products (ETPs) aim to generate income from investing in shares.
What is an equity income fund?
An equity income fund is an investment fund that provides exposure to dividend-paying shares.
An equity income fund pays regular distributions to investors who hold units in the fund. Those distributions effectively are the unitholder’s ‘share’ of the dividends paid by the shares the fund holds.
What are dividends?
Dividends are payments a company may make to its shareholders, usually on a periodic basis (e.g. twice a year). The amount an investor receives depends on how many shares they hold in the company and the amount of the dividend declared by the company.
Dividends are payable in cash, and some companies also offer a dividend reinvestment plan, where participating shareholders can elect to receive their dividends in the form of additional shares in the company.
The benefits of an equity income fund
An equity income fund may be suitable for an investor looking for relatively high yields, a regular income stream, and exposure to equities. A key benefit of equity income funds is diversified exposure, as the fund holds a portfolio of shares, reducing the risk associated with investing in a single stock or sector.
Historically, dividends have made up a significant proportion of the total returns from the Australian sharemarket. Historically, on average, Australian companies have tended to have among the highest dividend yields¹ and payout ratios² in the developed world.
Read why Australia historically has had a high payout ratio compared to other developed markets here.
What is the difference between dividends and equity?
A dividend is a portion of a company’s profit that it chooses to pay out to shareholders.
Holding equity means having a stake in a company – in other words, it means you are a shareholder in the company.
How to invest in equity income ETFs and ETPs?
You can buy and sell BetaShares equity income funds on the ASX just like shares. BetaShares has a number of exchange-traded products with a primary investment objective of generating income, and which typically pay distributions either monthly or quarterly to investors.
Some of these funds provide exposure to Australian equities, such as the BetaShares Legg Mason Equity Income Fund (managed fund) and the BetaShares Legg Mason Real Income Fund (managed fund), while others provide exposure to global equities, such as the BetaShares Global Income Leaders ETF.
Some equity income funds employ strategies to further enhance the income stream they generate, such as dividend-harvesting or option-writing. These funds include the BetaShares S&P 500 Yield Maximiser Fund (managed fund), BetaShares Australian Top 20 Equity Yield Maximiser Fund (managed fund) and the BetaShares Australian Dividend Harvester Fund (managed fund).
Investing in other income-generating funds
There are other ways to generate income from investment funds than just dividend-paying shares, including receiving interest income on cash, or from fixed income investments such as bonds or our hybrid product, BetaShares Active Australian Hybrids Fund (managed fund).
Considerations when investing in equity income
One consideration when investing for income is that funds which are designed with an income focus in mind may tilt the composition of investment returns away from capital and towards income generation.
It is important to always take into account your financial circumstances and investment goals, and consider a diverse range of investments across a balanced portfolio to meet your financial objectives.
Equity Income Funds
|INCM||BetaShares Global Income Leaders ETF - Aims to track the performance of an index (before fees and expenses) that comprises 100 high-yielding global companies (ex-Australia) screened for dividend sustainability.||Download|
|RINC||BetaShares Legg Mason Real Income Fund (managed fund) - Aims to provide an attractive and growing income stream, along with portfolio diversification, by investing in an actively-managed diversified portfolio of ASX-listed securities that hold real or “hard” physical assets.||Download|
|EINC||BetaShares Legg Mason Real Income Fund (managed fund) - Aims to provide an attractive and growing income stream, along with portfolio diversification, by investing in an actively-managed diversified portfolio of ASX-listed securities that hold real or “hard” physical assets.||Download|
|QFN||BetaShares Australian Financials Sector ETF - Aims to track the performance of an index (before fees and expenses) comprising the largest ASX-listed companies in the financial sector, including the ‘Big 4’ banks and insurance companies but excluding Real Estate Investment Trusts.||Download|
|UMAX||BetaShares S&P 500 Yield Maximiser Fund (managed fund) - Aims to generate attractive quarterly income and reduce the volatility of portfolio returns by implementing an equity income investment strategy over a portfolio of stocks comprising the S&P 500 Index. UMAX does not aim to track an index.||Download|
|YMAX||BetaShares Australian Top 20 Equity Yield Maximiser Fund (managed fund) - Aims to generate attractive quarterly income and reduce the volatility of portfolio returns by implementing an equity income investment strategy over a portfolio of the 20 largest blue-chip shares listed on the ASX. YMAX does not aim to track an index.||Download|
|HVST||BetaShares Australian Dividend Harvester Fund (managed fund) - Aims to provide exposure to large-cap Australian shares, along with the potential for franked income that is at least 1.5x the yield of the Australian broad sharemarket on an annual basis.||Download|
Investing involves risk. The value of an investment and income distributions can go down as well as up. Before making an investment decision you should consider the relevant Product Disclosure Statement (available at www.betashares.com.au) and your particular circumstances, including your tolerance for risk, and obtain financial advice. An investment in any BetaShares Fund should only be considered as a component of a broader portfolio.
1 – http://siblisresearch.com/data/global-dividend-yields/2019. Past performance is not indicative of future performance.
2 – Bloomberg. Past performance is not indicative of future performance.