Investors, and particularly retirees need income. While income sources have declined over the last decade, this year the fall has been more rapid. Not so for Talaria, with our income so far in 2020 higher than the last 10 years with a quarter still to go.
Source: Talaria, Bloomberg
So what’s driving this?
The RBA’s announcement on a sunny Melbourne Cup Day recently was one of its more significant in memory, taking the cash rate target to a measly 0.1%, potentially putting a full stop on its decline that started since the last raise in 2010, with the RBA Governor Dr Lowe saying the board was not expecting to increase the cash rate for “at least three years”. In addition, the target for the yield on the 3-year Australian Government bond is also around 0.1%.
While good news for borrowers, the announcement piled on the pain for accumulators, savers and retirees alike.
And to put that in perspective, investors who would historically have relied on bonds for the fixed income component of their portfolio, would now need substantially more capital to generate enough income to live off – assuming just above the ASFA standard of around $45k p.a. for a single person – an investor would need over A$6 million today versus less than A$2 million 7 years ago. Not an amount many investors will have.
Source: Talaria, RBA
To add to this, 3 of the major 4 banks have now announced their full year dividends – uniformly slashing them by around 60% versus the same time last year. As one of the highest paying dividend sectors in the Australian market, these cuts will be felt by many investors either directly or through their superannuation funds.
To solve for this, investors need an alternative – and Talaria offers exactly that through our process of using put options to enter our stock positions. This delivers a differentiated source of income that is not reliant on company dividends.
Source: Bloomberg, Talaria, Based on Talaria Global Equity Fund – Wholesale Units post-fees as at 30 September 2020
Past performance is nota reliable indicator of future performance
With the near-term yields for cash, dividends and bonds all remaining challenged, it pays to have Talaria’s liquid and stable alternative income source.