Plato LIC to focus on high yield bump

10-Mar-2017

By Sarah Kendell

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Yield-focused fund manager Plato Investment Management has opened subscriptions for a listed version of its Income Maximiser strategy.

The vehicle aims to take advantage of an anomaly in the high-yield equities space to boost income for pension phase investors without sacrificing the upside of broad sharemarket exposure.

Launching the listed investment company (LIC) at a media lunch in Sydney yesterday, Plato chief investment officer Don Hamson said the strategy would look to avoid common pitfalls in other yield-focused strategies, including call options or broad tilts toward high yield stocks.

“A common way a lot of our competitors create yield in the Australian market is to sell call options – you get paid income for doing it but you’re selling the upside, because there’s no free lunch,” he said.

“Our fund is purely long only – we don’t use derivatives, we’re not overweight banks, but we actively trade our fund to capture the income in the market.”

The ‘dividend run-up’ strategy the LIC would use involved buying into high yield stocks about two months before their ex-dividend date, to capture the increased performance that generally occurred in the run-up to a dividend announcement.

“People love income, so you have some investors who will bring forward their purchases or wait to sell a stock until it goes ex dividend, so you will commonly see dividend-paying stocks outperform during that period,” Hamson said.

“It’s an anomaly that we can take advantage of, particularly because we are managing for the pension market so we can trade very actively – we have turnover of 150 per cent in our fund because the vast majority of our investors don’t pay capital gains tax.”

The fund was seeking a minimum $75 million in capital from investors prior to its listing in early May.

But Seed Partnerships director Chris Donohoe, whose firm was advising on the raising, said he expected a strong oversubscription given there were few LICs on the market that specifically targeted the retiree market in this way.

“I think we will raise the maximum – there have been about five $300 million LICs in the Australian market and we have been a party to four of those, so I see this fund as another one in that range,” he said.

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