VanEck has released its new Income ETF Model Portfolio that will seek recommended strategic asset allocations to yield income as it predicts the RBA cash rate will go even lower than the current 0.75 per cent.
The Income ETF Model Portfolio aims to generate income of at least 2 per cent per annum more than the consumer price index (CPI), VanEck said in a statement.
It said that the portfolio also features a greater weighting to higher yielding corporate bonds.
VanEck noted that major differences to its existing model portfolios are a greater skew to Australian equities versus global equities given historically higher dividend yields and franking credits.
VanEck managing director and head of Asia Pacific Arian Neiron said investors are struggling to reap income from their investments as interest rates tumble to historic lows and are likely to stay lower for longer in Australia, with another rate cut expected by the Reserve Bank of Australia in the first half of 2020.
Further, he said VanEck’s new Income ETF Model Portfolio supports financial advisers in creating a simple portfolio of ETFs targeting income for retiree clients.
“Asset allocation will be key in helping [investors achieve] a decent income return, because it is no longer going to come from cash. With interest rates at historic lows, Australia has caught up to the rest of the world in having ultra-low interest rates,” Mr Neiron said.
“That situation is not likely to reverse anytime soon, with another official rate cut expected in the next few months, so investors seeking income will need to allocate more to income-producing equities and fixed income securities to achieve a decent return.
“Simply speaking, cash and government bonds will not yield the income that retirees need for retirement in this new decade, which will force them to move up the risk curve.
“We believe the RBA will cut interest rates to a historic low of 50 basis points in the first half of this year.”