The FSA Spy market buzz – 3 May 2024
Catholic principles investment, Brown Advisory and ESG, Robotics and automation fun, China’s little bounce, Frontier investing excitement, Zero downside in wonderland, Bambu’s demise and much more.
FE Fundinfo, which bases its assessment on a fund’s three-year history of delivering alpha, minimising relative volatility and producing consistent returns, has assigned a four-crown rating to the Allianz fund, but can only give the Franklin fund one crown.
Morningstar has awarded the Allianz product five stars based on historical returns, and with a neutral analyst rating. The firm awards the Franklin only two stars, and also a forward-looking analyst rating of neutral for its retail share class.
A few months ago, Morningstar wrote a white paper on high-income-paying funds and how they have profited from the interest of income-seeking investors faced with low (or zero) bank deposit rates in Asia.
“The study found that income-oriented allocation funds have distributed higher income-payout yields than equity and fixed-income funds, but that there are large differences between the funds in each asset class,” said DeFauw.
The $37.7bn Allianz Income and Growth Fund, one of the largest high-income-paying funds available for sale in Hong Kong and Singapore, “tops the list with an income-payout yield of around 7% and stands out in its ability to deliver a return above the income it paid out,” said DeFauw.
However, this was not the case for many other high-income-paying funds, which had to tap into their capital to meet payout obligations, he said.
Allianz distributes a fixed monthly coupon to investors, “but this payout was cut several times in recent years while short-term capital gains fund about 75% of the monthly distribution,” according to DeFauw.
The Franklin Income Fund also has share classes that pay out dividends to investors, and have managed to keep their yield above 5% for over a decade now.
“Investors in both Allianz Income and Growth and Franklin Income should be aware that these funds have taken a hefty dose of (credit) risk to hit their income goals,” warned DeFauw.
“The risky portfolio design in Allianz, which is all about maximising yield, and the lack of a clear competitive advantage in Franklin Income’s process and team, keep our Morningstar analyst rating at Neutral for both funds,” he said.
Catholic principles investment, Brown Advisory and ESG, Robotics and automation fun, China’s little bounce, Frontier investing excitement, Zero downside in wonderland, Bambu’s demise and much more.
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