The funds management giant has launched a new offering that it says will solve many of the complications and trade-offs involved in managing money for retiree investors.
Magellan’s FuturePay, which launched to the market this week, will “help investors and their advisors to meet the challenges of establishing a regular income from their accumulated savings”, according to the fund manager’s chief executive Brett Cairns.
“If you’re looking for predictable income in retirement, it often means accepting a lower income and with limited growth, and you might have to dip into capital to achieve that,” Mr Cairns told attendees at a launch event on Tuesday.
“If you want to invest for growth, your income becomes less predictable – you can hand that problem to an insurance company, but it comes at a higher capital cost and your access to capital is more limited.”
Mr Cairns said advisers often got around these problems by using a “bucketing” strategy with a cash buffer they could adjust depending on market movements.
“Broadly what happens is an adviser will develop a portfolio of growth assets and a cash account that’s sized in time – people will say I’ve got two or three years’ worth of cash,” he said.
“It serves as an intuitive way of dealing with sequencing risk – you don’t have to sell something in the growth bucket [in a market decline] and as growth assets start to recover, you can participate in that compounding and replenish the cash bucket to balance things back up.
“But when do you use those reserves and how much do you bring back?”
Magellan’s new fund aimed to take the guesswork out of bucketing for advisers by utilising a similar built-in reserving strategy, while also investing in a global portfolio of high-quality, low-volatility listed companies, the fund manager said.
“We think that FuturePay really addresses an unmet need in the Australian retirement landscape,” Magellan head of retirement solutions Paddy McCrudden said.
“The combination of a portfolio of high quality, low volatility global companies and a reserving strategy with on-going income support means that FuturePay has the potential to significantly improve outcomes for investors in retirement.”
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