Performance Report: Bennelong Long Short Equity Fund

8 Aug 2025 - FundMonitors.com

The Bennelong Long Short Equity Fund rose by +1.07% in July. Since inception in February 2002, the fund has returned +12.48% per annum, an outperformance of +4.01% relative to the ASX 200 Total Return benchmark which has returned +8.47% on...

Performance Report: Bennelong Australian Equities Fund

8 Aug 2025 - FundMonitors.com

The Bennelong Australian Equities Fund rose by +7.00% in July, outperforming the ASX 200 Total Return benchmark by +4.64%. Since inception in February 2009, the fund has returned +11.35% per annum, an outperformance of +1.21% relative to...

Phil Strano: Is now the sweet spot for active bond management?

8 Aug 2025 - Yarra Capital Management

Yield curves are steepening, volatility remains elevated, and policy decisions are moving markets in ways that upend some of the more reliable patterns of the last decade. In this environment, Phil Strano (Head of Australian Credit...

8 Aug 2025 - Phil Strano: Is now the sweet spot for active bond management?

By: Yarra Capital Management

Phil Strano: Is now the sweet spot for active bond management?

Yarra Capital Management

July 2025

The volatility currently seen in bond markets is being fuelled by a combination of macroeconomic forces. In the U.S., ballooning fiscal deficits and a new $3.8 trillion tax bill are putting upward pressure on long-term interest rates. At the same time, foreign demand for U.S. Treasuries appears to be weakening. Central banks are reducing interest rates, yet are constrained in their influence over longer-dated bonds. Meanwhile, Australia faces a decade of projected deficits of its own, and our yield curve continues to respond more to global forces than domestic settings.

These pressures are driving significant steepening in the yield curve - the difference between short- and long-dated bond yields. Steepening curves allow skilled credit managers to adjust risk exposure and capitalize on price differences.

In this environment, extending the maturity of our bond holdings has become more appealing, particularly given longer-term bonds can offer stronger price gains as they approach maturity - a dynamic we term "rolldown." At the same time, we're also seeing anomalies in credit spreads, where less sophisticated investors are prioritising yield over relative value, creating pockets of possible mispricing. This is where active management proves its worth. Passive bond funds are bound by index rules. They cannot reposition for anticipated curve moves, nor can they selectively add risk when prices dislocate.

Given the Bloomberg FRN Index is more highly rated (average AA- compared to BBB) with shorter spread duration (~two years compared to ~three), the Yarra Higher Income Fund (HIF) is well placed to outperform during risk-on periods (refer Chart 1). However, HIF's outperformance during certain risk-off periods demonstrates the potential benefits of active management. HIF outperformed the index through 2022 in an environment of both higher bond yields and credit spreads and more recently in April 2025.

Outperformance in April provides a recent example of how nimble decision-making up and down the curve may contribute to risk adjusted returns. While the FRN Index posted a negative excess return of 11bps compared to the RBA Cash Rate, HIF posted a positive 32 bps excess return despite credit spreads widening by 20-30bps over the month.

In April, we started the month expecting volatility around geopolitical events, which prompted us to lift cash levels and position our portfolios with higher overall interest rate duration. Crucially, we also implemented this with a steepening bias or, in other words, a view that long-term interest rates would rise faster than short-term rates. By focusing our exposure on the front of the curve, or short-term bonds, and being underweight long-term bonds at the back end, we were well-positioned when the long end sold off sharply while the short end remained stable.

Chart 1 - Cumulative Return - Yarra Higher Income Fund v. Bloomberg FRN Index

Source: YCM/BBG, June 2025.

In terms of stock selection, April also presented some fantastic buying opportunities for us to take advantage of spread widening and add high-quality credit exposures at discounted levels. One such name was the USD-denominated Perenti 2029 bonds, an issuer we had previously sold at tight spreads of BBSW+180bps and were able to buy back ~200bps wider (BBSW+380bps). Credit spreads have since contracted ~100bps from these wides, providing a tidy return on investment.

While our portfolio positioning has not changed markedly from 12 months ago, these two recent examples show how we're actively managing nimble, benchmark-unaware portfolios that are more 'all-weather' credit in nature. Our April performance, in which both Yarra's Enhanced Income Fund (EIF) and Higher Income Fund (HIF) posted positive absolute returns, underscores the value of our approach. Our strategy came together as a result of preparation, speed, and conviction, none of which are available to passive strategies.

Looking beyond the tactical wins, and the case for active credit is supported by the broader macro context. While spread volatility continues, outright yields in the front and mid-parts of the curve have held steady. That means the income on offer remains attractive - and investors are simply being rewarded through a different mix of risk premia. The flexibility to shift between spread and rate risk allows us to preserve capital and position for growth, depending on where the market is offering best value.

It's a powerful setup. Investment-grade credit today is offering yields that, on a 12-month view, look comparable to long-term equity market returns - but without the same drawdown risk. Across the spectrum, private credit looks less compelling: the illiquidity and default risk required to justify allocations to private credit simply aren't being compensated in this environment.

Looking ahead, we see the drivers of this opportunity set - fiscal overreach, inflation variability, and steepening curves - as persistent features of the bond market over the next 6 to 12 months. We believe this is a sweet spot for credit investing. High running yields and steeper curves, allowing active positioning across durations are compelling and signal the era of 'buy everything and wait' in fixed income is over. Today's market rewards clarity of view, agility of execution, and a willingness to lean into volatility when others step back.

Funds operated by this manager:

Yarra Australian Bond Fund , Yarra Australian Equities Fund , Yarra Emerging Leaders Fund , Yarra Income Plus Fund , Yarra Enhanced Income Fund

Pivot, don't panic: America's next act

7 Aug 2025 - Magellan Asset Management

Every few years, geopolitical commentators declare the end of American global leadership. Sometimes it's after a messy war. Other times it's a financial crisis, political dysfunction or, most recently-- strikes on Iran or China's rise.

7 Aug 2025 - Pivot, don't panic: America's next act

By: Magellan Asset Management

Pivot, don't panic: America's next act

Magellan Asset Management

July 2025

Every few years, geopolitical commentators declare the end of American global leadership. Sometimes it's after a messy war. Other times it's a financial crisis, political dysfunction or, most recently-- strikes on Iran or China's rise.

The paradox of the United States' position is this: Even as the US navigates unprecedented challenges, it retains formidable influence in shaping the global order and the United States remains the world's indispensable power, because the US course-corrects in a few ways few nations can.

Contrary to claims that the United States is retreating into isolationism, recent actions tell a different story. Despite widespread perceptions that the Trump administration is disengaging, the US remains deeply involved in every major global theatre. Before Trump's election, pundits predicted the Administration would abandon Ukraine, yet it has maintained its pursuit of difficult negotiations with Russia. In the Middle East, the US is managing complex ties with Israel, strategic imperatives surrounding Iran's nuclear program and Arab partnerships grounded by billions in energy and infrastructure deals.

While these actions have dominated recent headlines, nowhere is the evolution of US leadership clearer than in Asia. For Australia and its neighbours, the question is not whether the United States is leaving, but how it is adapting militarily, economically and technologically to strengthen its partnerships and counteract China's rise.

Militarily, the US remains the world's most capable power. However, enduring peace and prosperity in the Indo-Pacific require more than individual actions - it requires robust partnerships. Recognising this reality, the Administration has shifted from a traditional hub-and-spokes alliance model to a more networked, flexible architecture. On his first day as Secretary of State, Marco Rubio convened the foreign ministers of the Quad, a move that both exemplified this new approach and showcased the importance of the alliance to the Administration.

The Quad, and agreements like it, remain a bipartisan priority in Washington and Canberra alike, reflecting a shared vision for regional stability that is grounded in a willingness for practical collaboration. The United States and its partners are not seeking to contain China, but to ensure that competition remains fair.

Economically, US policy has forced a global reckoning with China's practices. Despite widespread criticism, tariffs have become a hallmark of Trump's novel approach to policymaking. Although critics argue that this approach has strained alliances and emboldened adversaries, it has also brought countries to the table to reassess and renegotiate for fairer terms.

Notably, it has exposed systemic vulnerabilities in China's economy. The June 2025 tariff reduction agreement has placed pressure on Beijing to address structural issues like forced technology transfers and industrial subsidies. For the first time in decades, it is China - not the US - playing defence in the global economic arena, triggering a recalibration that puts Beijing on its back foot.

While China's $280 billion trade surplus¹ with the United States has fuelled perceptions of its rising economic dominance, Beijing's actions, from IP theft to dumping, have galvanised a global response. From Europe's industrial heartlands to Southeast Asia's ports, nations are confronting the same challenges. In 2024, the European Union launched² several anti-dumping investigations against Chinese firms, while publishing multiple reports detailing China's widespread violations of international trade norms. These actions reflect a growing recognition that Beijing's model is incompatible with fair competition.

US allies such as Australia and Japan have tightened³ foreign investment rules to counter China's strategic acquisitions. Even developing economies in Africa and Latin America are pushing⁴back against predatory Belt and Road lending.

The United States and China are locked in a fierce competition for technological leadership. According to the Australian Strategic Policy Institute (ASPI), China is now ahead⁵ in 37 of the 44 critical and emerging technologies evaluated. The United States, however, maintains a lead in several foundational sectors, including advanced semiconductor devices, high-performance computing, advanced integrated circuit design, and quantum computing. This evolving landscape highlights the urgency for the United States to sustain investment in research and development, strengthen talent pipelines and deepen international collaboration to maintain its competitive edge.

While the challenges facing US leadership, such as soaring debt, domestic polarisation and strategic impatience, are undeniable threats to its global standing, history shows these are not insurmountable. To claim that US global leadership is finished misreads the moment. The trade war, for all its disruptions, has forced a long-overdue debate about fair competition, supply chain security, and technological sovereignty. China's aggression has galvanised democracies to act, while US innovation ecosystems continue to set the pace in critical industries. The US has also shown a willingness to use swift military force and support an ally
when threatened existentially.

The United States has navigated existential crises before, from the Great Depression to the Cold War, by adapting its leadership, not abandoning it. For Australia and the Indo-Pacific region, the future is not about choosing sides, but about building a resilient network of partnerships that can progress through uncertainty together. US leadership in Asia is not waning; it is deepening.

The world still looks to Washington for leadership, but that leadership must now balance the urgency of great-power rivalry with the consistency and long-term vision needed for global order.

Funds operated by this manager:

Magellan Global Fund (Open Class Units) ASX:MGOC , Magellan Infrastructure Fund , Magellan Global Opportunities Fund No.2 , Magellan Infrastructure Fund (Unhedged) , Magellan Global Fund (Hedged) , Magellan Core Infrastructure Fund , Magellan Global Opportunities Fund Active ETF (ASX:OPPT)

1 Office of the United States Trade Representative (USTR). (2025). China Trade Summary. https://ustr.gov
2 China Briefing. (2025, July 2). EU-China Relations After the 2024 European Elections: A Timeline. Dezan Shira & Associates. https://www.china-briefing.com
3 The Japan News. (2025, July 9). Japan to tighten screening of foreign investors. Asia News Network. https://japannews.yomiuri.co.jp
4 Myers, M., & Ray, R. (2024, June). Feeling the Stones: Chinese Development Finance to Latin America and the Caribbean, 2023. Inter-American Dialogue &
Boston University Global Development Policy Center. Retrieved from https://www.thedialogue.org
5 Long, A. (2023, May 23). The Global Race for Future Power: Critical Technology and the Strategic Development of Talent. PGS Industry Insights. Retrieved from
https://www.pgs.com

Important Information:

Copyright 2025 All rights reserved. Units in the funds referred to in this podcast are issued by Magellan Asset Management Limited ABN 31 120 593 946, AFS Licence No. 304 301 ('Magellan'). This material has been delivered to you by Magellan and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to a Magellan financial product may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com.au. The opinions expressed in this material are as of the date of publication and are subject to change. The information and opinions contained in this material are not guaranteed as to accuracy or completeness. Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward looking' statements and no guarantee is made that any forecasts or predictions made will materialise. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Magellan will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Magellan. Further important information regarding this podcast can be found on the Insights page on our website, www.magellangroup.com.au.

The enemy within

6 Aug 2025 - Canopy Investors

Human beings are hardwired for survival, not for investing. The psychological traits that helped our ancestors survive in tribes and navigate danger now often hinder our ability to build long-term wealth.

6 Aug 2025 - The enemy within

By: Canopy Investors

The enemy within

Canopy Investors

July 2025

"The investor's chief problem -- and even his worst enemy -- is likely to be himself."
Benjamin Graham, 1949

Human beings are hardwired for survival, not for investing. The psychological traits that helped our ancestors survive in tribes and navigate danger now often hinder our ability to build long-term wealth. At Canopy, we believe managing our own behavioural biases is as fundamental to our investment process as our rigorous quality assessment or valuation discipline.

Buy high, sell low!

Investment returns and investor returns are not the same thing. Markets have historically rewarded patient capital, but most investors fail to capture these returns due to poor timing decisions, a phenomenon known as 'the behaviour gap'. It occurs because investors systematically buy after prices have already risen and sell after they have fallen, transforming market volatility from a potential opportunity into a source of loss. Understanding and defending against this dynamic is crucial for long-term wealth creation, as even small behavioural penalties compound dramatically over time.

The behaviour gap cycle ^{Source: The Behaviour Gap, Carl Richards.}

This pattern has been consistently documented in studies of investor behaviour. As noted in Chapter 4, DALBAR's long-running analysis found that over the last three decades, the average US equity fund investor has underperformed the S&P 500 by 3-4% annually, primarily because of buying high and selling low during volatile periods (2022). Morningstar's Mind the Gap study (2023) has reached similar conclusions, finding that the average dollar invested in funds earned a 10-year return to December 2022 that was 1.7% less annually than the average underlying fund.

Perhaps the most striking example comes from one of history's most successful fund managers. Peter Lynch managed the Magellan Fund at Fidelity Investments between 1977 and 1990, producing an annualized return of 29.2%. Yet it has been reported that the average investor in his fund made only 7% per annum (Jakab, 2016). Despite having access to exceptional investment performance, poor timing decisions cost investors the majority of their potential returns.

The behaviour gap tends to be most pronounced during periods of market exuberance or stress, as illustrated in Figure 2. In the lead-up to the GFC in 2007, equity fund inflows remained strong despite mounting economic risks. As equity markets declined through 2008, fund outflows accelerated dramatically, reaching their most negative levels during 2008-2009. As it turned out, this was actually a great buying opportunity. Crucially, outflows continued even after markets began recovering, with flows remaining negative through 2011 despite substantial market gains during this period. This timing pattern illustrates how investor behaviour often lags market turning points, leading to suboptimal entry and exit decisions.

Relationship between fund flows and market performance ^{Source: Investment Company Institute, Canopy Investors.}

When instincts backfire

To cope with the daily information overload, our minds rely on mental shortcuts called heuristics. While these shortcuts serve us well in many aspects of life, they can also work against us. Several behavioural biases are particularly problematic for investing:

Confirmation bias causes us to seek information that supports our existing beliefs while ignoring contradictory evidence. An investor convinced of a company's potential might focus on management's optimistic guidance while dismissing customer complaints, executive departures, or deteriorating financial metrics.
Overconfidence tricks us into believing we can predict outcomes with greater certainty than we actually can. This might manifest as an investor who has enjoyed success with a few stock picks becoming convinced they can time market cycles, leading them to make increasingly concentrated bets or using leverage.
Loss aversion makes losses feel more painful than equivalent gains feel pleasurable. This asymmetry leads to seemingly irrational behaviour: holding losing positions for too long (hoping to 'break even') while selling winners too quickly (to 'lock in gains').
Hindsight bias convinces us we 'knew it all along' after events unfold, preventing us from learning from our mistakes. An investor might remember being 'cautious' about a failed investment when their notes actually show they were highly confident at the time of purchase, preventing honest post-mortems that could improve future decision-making.
Groupthink emerges when teams prioritise harmony over critical thinking. Investment committees might reach consensus not because the analysis is sound, but because challenging the prevailing view feels uncomfortable.
Recency bias leads us to overweight recent events when making decisions. Investors often chase last year's best-performing asset class assuming recent trends will continue indefinitely. This backwards-looking approach systematically buys high and sells low, as yesterday's winners often become tomorrow's laggards.
Herding makes us feel comfortable following the crowd, even when the crowd is heading toward a cliff. The Dutch tulip mania, the South Sea Bubble, and the housing bubble all shared a common thread: rational people making irrational decisions because 'everyone else was doing it'.

Herd mentality ^{Source: Tom Fishburne.}

These biases often work in combination, amplifying their individual effects. Recency bias might lead an investor to chase last year's hot sector, while confirmation bias ensures they only read bullish research, and overconfidence convinces them to make an oversized bet. When a reversal eventually comes, loss aversion prevents them from cutting losses quickly, and hindsight bias ensures they learn nothing from the experience.

Our approach

The late Nobel laureate Daniel Kahneman reached a somewhat disheartening conclusion at the end of his influential book 'Thinking, Fast and Slow': there is little we can do as individuals to prevent behavioural biases from influencing our decisions. He considered that objectivity is easier when evaluating others' decisions than our own; "it is much easier to identify a minefield when you observe others wandering into it than when you are about to do so."

At Canopy, we have adopted team and rules-based processes to minimise individual biases, with our flat structure serving as the foundation:

Institutionalized dissent: We have deliberately built structured debate into our process, recognising that it is often easier to spot flaws in someone else's reasoning than in our own. Every position in the Fund has a 'secondary analyst' whose primary task is to act as devil's advocate to the primary analyst's view. This structure reduces the prospect of groupthink and confirmation bias by forcing alternative perspectives into every investment discussion.
Independent conviction ratings: Each team member maintains independent views on stocks, and these views directly impact portfolio construction. Ratings and comments are recorded and reviewed when performing post-mortems on positions, increasing accountability among all team members, reducing hindsight bias, and accelerating learning from both successes and failures.
Pre-mortem analysis: Before taking positions, we routinely perform pre-mortems, where we imagine our thesis is incorrect a couple of years into the future and consider what might have gone wrong. This exercise reduces groupthink, confirmation bias, and overconfidence by forcing us to actively consider how our thesis might be wrong.
Multiple valuation approaches: We use several valuation methodologies to avoid the pitfalls of relying on simple multiples or heuristics alone. Additionally, our valuations are expressed as ranges rather than point estimates, helping to reduce overconfidence, and acknowledging the inherent uncertainty in any valuation exercise.
Disciplined selling framework: To combat loss aversion, we maintain strict sell discipline. We are particularly vigilant about selling stocks where there has been material 'thesis creep' - gradual changes to our original investment rationale that often signal we are rationalising poor performance. In our experience, these situations frequently become value traps. For high-quality companies, we more gradually reduce positions when valuation becomes the primary concern.
Variant perception: When investing in any stock, we work to identify our source of edge and how our view differs from the market consensus. Since markets are typically efficient, the best opportunities arise when we can disagree with the consensus while maintaining strong conviction in our analysis.
Systematic position sizing: We use a systematic tool that translates our quality and valuation assessments into suggested portfolio weights. As illustrated in Figure 4, higher-quality companies are allocated a substantially larger position size for any given expected return.¹ As these weights change daily with share prices (and less frequently with our fundamental assessments), we are prompted to dispassionately evaluate position sizes, helping to reduce the influence of recency bias and emotion.
Decision quality over outcomes: We seek to evaluate the quality of our decisions rather than judging success solely according to outcome. This distinction helps us learn from both wins and losses by focusing on whether our analysis was rigorous and our reasoning sound, rather than results that may reflect luck or short-term market movements.

Weight to return % ^{Source: Canopy Investors.}

While no process can eliminate mistakes entirely, ours is designed to reduce the risk of material missteps and support more disciplined position sizing. We accept that we will make mistakes, but by identifying potential pitfalls before committing capital - not after - we improve our chances of avoiding them. The same behavioural traits that once helped humans survive can undermine investment decisions. Our process has been designed to help our portfolio succeed in spite of them.

Funds operated by this manager:

Canopy Global Small & Mid Cap Fund

News & Views: One final round of rail consolidation?

5 Aug 2025 - 4D Infrastructure

The North American freight rail sector is a critical pillar of the US economy and one of the largest and oldest sectors in the global listed infrastructure universe.

New Funds on Fundmonitors.com

4 Aug 2025 - FundMonitors.com

Here are some of the latest additions to our database. Follow the links to view each fund's profile, where you'll have access to their offer documents, monthly reports, historical returns, performance analytics, rankings, research,...

4 Aug 2025 - New Funds on Fundmonitors.com

By: FundMonitors.com

New Funds on FundMonitors.com

Below are some of the funds we've recently added to our database. Follow the links to view each fund's profile, where you'll have access to their offer documents, monthly reports, historical returns, performance analytics, rankings, research, platform availability, and news & insights.

India Avenue Equity Fund - Listed Class

Inception date:	March 2025	Minimum initial investment:	AU$0
Strategy:	Equity Long	Distributions:	Annually
Geographic mandate:	India	Management fee:	1.10%
Investor type:	Retail	Performance fee:	10.00%

View Profile

Indian Pacific Fund

Inception date:	January 2018	Minimum initial investment:	AU$250K
Strategy:	Equity Long/Short	Distributions:	Annually
Geographic mandate:	Australia/Global	Management fee:	1.00%
Investor type:	Wholesale	Performance fee:	20.00%

View Profile

Blackwattle Global Quality Fund

Inception date:	May 2024	Minimum initial investment:	AU$25,000
Strategy:	Equity Long	Distributions:	6 Monthly
Geographic mandate:	Global	Management fee:	0.90%
Investor type:	Retail	Performance fee:	0.25%

View Profile

VanEck Global Listed Private Credit (AUD Hedged) ETF

Inception date:	January 2024	Minimum initial investment:	AU$0
Strategy:	Private Debt/Mortgage	Distributions:	Monthly
Geographic mandate:	Global	Management fee:	0.65%
Investor type:	Wholesale	Performance fee:	Nil

View Profile

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Hedge Clippings | 01 August 2025

1 Aug 2025 - FundMonitors.com

According to economists, market junkies and the media, all or most of whom incorrectly thought there would be a rate cut in July, this week's June quarter inflation number makes a rate cut of 0.25% in August a certainty.

1 Aug 2025 - Hedge Clippings | 01 August 2025

By: FundMonitors.com

Hedge Clippings | 01 August 20256

According to economists, market junkies and the media, all or most of whom incorrectly thought there would be a rate cut in July, this week's June quarter inflation number makes a rate cut of 0.25% in August a certainty.

Most of them reiterated that they thought the RBA should have acted in July rather than waiting five weeks for more data. That data, in the form of the bank's preferred "trimmed mean"inflationary measure, which came in at an annualised 2.7%, continued a downward trend, and was the lowest number since December 2021.

So you'd have to suggest a rate cut the week after next would be a fait accompli. Except that the RBA are, by nature, cautious folk, embodied by their stated strategy of "easing monetary policy in a cautious and gradual manner", and there remain a couple of unknowns out there.

At home, there's a risk that inflation picks up in the September and December quarters as the various energy subsidies disappear.

Globally, there's the uncertainty around the economic and inflationary effects of Trump's tariffs, and his "big beautiful bill". US Fed chief Jerome Powell was sufficiently uncertain overnight and so kept US rates on hold, where they've been since last December, even though he kept his options open about the possibility of a cut in September, subject to the data.

Meanwhile, back to those tariffs. It appears that for the time being, Australia has "escaped"with a tax rate of just 10% on imports into the US, a far cry from Canada's rate of 35%. Of course, knowing Trump this could change, but for now it seems that Albo's strategy of keeping a low profile could be working.

Then again, it might not be Albo's strategy that's keeping Australia out of Trump's firing line. Maybe the Donald has other more pressing matters to deal with. We'd hope that's the case.

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The Evolution and Benefits of Equity Income Funds in Australia's Growing...

1 Aug 2025 - Merlon Capital Partners

Australia's growing retirement-age population has seen an increase in demand for and the availability of equity income funds over the last few decades.

1 Aug 2025 - The Evolution and Benefits of Equity Income Funds in Australia's Growing Retirement Market

By: Merlon Capital Partners

The Evolution and Benefits of Equity Income Funds in Australia's Growing Retirement Market

Merlon Capital Partners

July 2025

.Australia's growing retirement-age population has seen an increase in demand for and the availability of equity income funds over the last few decades. Australia's unique dividend imputation system means investors can successfully derive meaningful income as well as capital growth from holding Australian equities. Equity income strategies regularly make up a large component of the equity allocation for income-focused clients who seek a more defensive asset mix.

Equity income funds have evolved significantly over time, beginning in the 1990s, with MLC and Colonial First State (now First Sentier Investors) launching equity income products. These initial products were not specifically focused on paying a regular, smoothed, tax-effective income but rather designed to grow capital before retirement to provide income once in retirement. The mid-2000s saw the equity income fund reimagined, designed specifically to meet retiree's key objectives - income generation, volatility management and capital growth over time. A number of managers developed products to meet these objectives at this time.

The wake of the GFC saw growing recognition of the importance of total return generation from income, limiting the need to sell down holdings during market downturns. As a result, the equity income space continued to grow and through the 2010s, various managers launched new income funds, often with full market exposure. Additionally, with the rising popularity in passive investing through the 2010s, income-focused ETFs also emerged from leading ETF providers with the goal of generating income that exceeds the dividend yield offered by the broader market. With an aging population, the addressable market for equity income funds is only growing. Whilst not all equity income funds remain in existence today, there are a variety to choose from with over 15 Australian fund managers offering a product in this space.

The need for regular income in retirement is well known and there are various ways to meet cashflow requirements. However, many of these tend to overlook the particularities of retirement. While fixed income products can help to meet an income objective, they fail to provide capital growth to protect against the impacts of inflation. A diminishing capital value on a real basis is inconsistent with the desire of many retirees for a growing capital base for both peace of mind and to leave an inheritance. Another option is to pursue an equity strategy centred solely on capital growth and simply selling down holdings when cashflow is required, rather than investing in income-generating investments. Yet, this ignores the fact that retirees are much more impacted by periods of drawdown than other investors, especially early in their retirement, amplified by their obligation to draw out from accounts when in pension phase. The GFC market crash and COVID-19 selloff in early 2020 demonstrated the serious consequences of needing to sell at an inopportune time and its long-term impact on total return. Skewing the components of equity total return to income removes the need to sell investments to raise cash when required. Proposed alternatives to equity income also ignore the value of franked dividends, which for retirees in pension phase present significantly more value than unfranked income or capital gains. Australian equity income strategies, when structured and executed appropriately, can provide strong total returns over time through attractive dividend yields and without sacrificing capital growth.

The Merlon Australian Share Income Fund was launched in 2005 and led the innovation of contemporary equity income funds. It was the first product of its kind, aiming to provide above-market income with franking, grow capital over time with lower risk than the market. The non-benchmark portfolio has a high active share, blending well with both passive and direct share portfolios which are typically overweight large cap stocks. The Fund delivers above market income, the majority from franked dividends, paid monthly and has demonstrated strong risk-adjusted returns over multiple time periods. The strategy features a risk reduction overlay to insulate the Fund during periods of drawdown whilst retaining 100% of the franked dividend income generated from the underlying portfolio.

Merlon's investment philosophy is based on the idea that behavioural biases create opportunities, even in markets considered "efficient". In particular, Merlon focuses on investing in companies where the market has become overly pessimistic, investing in undervalued companies with a focus on downside/bear case valuation to preserve capital. Merlon believes that buying companies when the market is overly pessimistic at low end of valuation range should result in growth of the capital base. Companies are valued on the basis of sustainable free cash flow, not dividend yield alone which is often a poor indicator of future performance and can lead to destruction of capital value. History has shown that investing in quality companies with sustainable free cash

Funds operated by this manager:

Merlon Australian Share Income Fund , Merlon Concentrated Australian Share Fund

This material has been prepared by Merlon Capital Partners Pty Ltd (ABN 94 140 833 683 AFSL 343 753) (Merlon), the investment manager of The Merlon Australian Share Income Fund (Fund). Fidante Partners Limited ABN 94 002 835 592 AFSL 234668 | Fidante Partners Services Limited ABN 44 119 605 373 AFSL 320505] (Fidante) is a member of the Challenger Limited group of companies (Challenger Group) and is the responsible entity of the Fund. Other than information which is identified as sourced from Fidante in relation to the Fund, Fidante is not responsible for the information in this material, including any statements of opinion.It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable to your circumstances. The Fund's Target Market Determination and Product Disclosure Statement (PDS) available at www.fidante.com should be considered before making a decision about whether to buy or hold units in the Fund. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Past performance is not a reliable indicator of future performance. Merlon and Fidante have entered into arrangements in connection with the distribution and administration of financial products to which this material relates. In connection with those arrangements, Merlon and Fidante may receive remuneration or other benefits in respect of financial services provided by the parties. Investments in the Fund are subject to investment risk, including possible delays in repayment and loss of income or principal invested. Accordingly, the performance, the repayment of capital or any particular rate of return on your investments are not guaranteed by any member of the Challenger Group.

Performance Report: Insync Global Capital Aware Fund

31 Jul 2025 - FundMonitors.com

The Insync Global Capital Aware Fund saw mixed performance in June, with Veeva Systems contributing positively while an underweight position in Nvidia detracted. Insync remains confident in its diversified portfolio and continues to favour...

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