WHEN CLIENTS SEEK A HIGH LEVEL OF INCOME BUT WITH NO ADDITIONAL INVESTMENT RISK

For most investors a money market investment seems the safest bet when they don’t want to lose their capital, and perhaps live off the interest. Even in living annuities we’ve seen how money markets are incorporated for either the income bucket or for phasing into other asset classes over time. Money markets seem to work fine to provide clients with a sense of security. But is this necessarily the best instrument to use when private investors want a high level of income relative to the prevailing interest rates?

Introducing the Income Model Portfolio Range

Amity Investment Solutions has designed a range of income model portfolios that can fulfill the income need of the client. The benefit is that the client doesn’t need to take on any additional risk, but the client can potentially earn better returns. Over time volatility won’t be the only enemy to fear. As inflation continues to rise, this becomes a bigger threat to investors. This could mean that other income-like instruments such as local bonds, local flexible income, preference shares, inflation linked bonds, and corporate debt, should be considered.

The income solution range was designed with the idea of seeking the highest probability of producing a sustainable income for investors. The level of income required, income growth required, the need for capital preservation, and the need for the capital to grow were all factors considered

Meet the Stable Income model portfolio

The Stable Income portfolio is a model portfolio that launched in July of 2019. The portfolio forms part of the income model portfolio range on offer.

This portfolio considers two key risk profiles:

• The Income Risk

Income should be as stable as possible and given the type of fixed-income securities used, there may be a risk that issuers default on making the interest payments. The income generated from the underlying managers should be used to pay the income required by the client.

• The Capital Risk

Given the type of fixed-income securities used, we understand that there may be a risk that issuers can default on paying back the capital. This also highlights that there may be small up and down movements in the capital value, but it can be expected that the capital should stay the same over the investment horizon. In both instances we considered these two risks and ensured that quality managers were used when designing this model portfolio.

Amity Investment Solutions follows a robust investment process. As we are a top-down investment manager we consider the macro-economic conditions, and place large focus on asset class valuations. All this filters through to our stringent in-house research tools, and ultimately our quantitative scorecard where managers are analyzed. It is exactly this methodology that enabled us to select high quality investment managers in the flexible income and short-term interest-bearing space. These managers should adhere to our criteria. One such a criteria metric is the ability to produce a high and consistent level of income.

When considering a model portfolio that blends high quality income managers; offers a high level of capital stability, and ultimately produce a high level of income, the Stable Income model portfolio can be the ideal solution for your clients.