Merlon Australian Share Income Fund aims to provide a higher level of tax-effective income with a lower level of risk than the S&P/ASX 200 Accumulation Index, whilst also providing the potential for capital growth and inflation protection over the medium to long term.
The Fund underperformed the Benchmark by 1.2% (including fees and franking credits) during the quarter. Key performance drivers for the period were from the following positions:
Positive contributors:
• CSL (underweight): continued to decline off its COVID peaks, as it struggles with the impact of elevated donor fees on margins, and as it continues to lose share to key rival Takeda.
• AMP (overweight): outperformed following its full year result announcement, with banking and investment platform earnings higher, and with the company noting an ambitious cost-out target.
• Treasury Wine Estates (overweight): benefited from the thawing of geopolitical tensions between Australia and China, with the barley tariff removals viewed by the market as increasingly the likelihood of the wine tariff removal.
• News Corporation (overweight): benefited from its full year result showing strong earnings growth, in particular in its Dow Jones and News Media divisions.
• CSR (overweight): outperformed as the downturn in the Australian housing market has proven less severe to date than expected, following aggressive RBA interest rate hikes.
Negative contributors:
• Star Entertainment Group (overweight): continued to struggle as the company attempt to navigate an increasingly restrictive regulatory environment aimed at curbing problem gaming.
• Alumina Limited (overweight): was impacted by disruptions to its planned mining activities following a referral to the Environmental Planning Agency by the WA Forest Alliance.
• Coles Group (overweight): underperformed as the market was the company reported a slower than expected unwind of COVID costs, coupled with a higher capex program to increasingly automate its warehouse capabilities.
• Healius (overweight): was impacted by pathology volumes remaining weak in the face of an expected recovery, flowing through to continued low margins from elevated fixed costs and higher interest costs.
• A2 Milk Company (overweight): underperformed as market expectations for China births in 2023 deteriorated, albeit offset by market share gains. The risk reduction overlay contributed positively during the quarter, insulating the Fund from some of the falls in the underlying share portfolio.
What is Merlon Australian Share Income Merlon Australian Share Income is an Managed Funds investment product that is benchmarked against ASX Index 200 Index and sits inside the Domestic Equity - Derivative Income Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Merlon Australian Share Income has Assets Under Management of 399.55 M with a management fee of 0.95%, a performance fee of 0.00% and a buy/sell spread fee of 0.4%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Merlon Australian Share Income has returned 0.38% in the last month. The previous three years have returned 6.89% annualised and 11.11% each year since inception, which is when the Merlon Australian Share Income first started.
How is risk measured in this investment product?
There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Merlon Australian Share Income first started, the Sharpe ratio is NA with an annualised volatility of 11.11%. The maximum drawdown of the investment product in the last 12 months is -2.25% and -39.94% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product?
Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Merlon Australian Share Income has a 12-month excess return when compared to the Domestic Equity - Derivative Income Index of -3% and -0.54% since inception.
Does the investment product produce Alpha over its Peers?
Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Merlon Australian Share Income has produced Alpha over the Domestic Equity - Derivative Income Index of NA% in the last 12 months and NA% since inception.
What are similar investment products?
For a full list of investment products in the Domestic Equity - Derivative Income Index category, you can click here for the Peer Investment Report.
What level of diversification will Merlon Australian Share Income provide?
Merlon Australian Share Income has a correlation coefficient of 0.94 and a beta of 0.63 when compared to the Domestic Equity - Derivative Income Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers?
For a full quantitative report on Merlon Australian Share Income and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Merlon Australian Share Income with the ASX Index 200 Index?
For a full quantitative report on Merlon Australian Share Income compared to the ASX Index 200 Index, you can click here.
Can I sort and compare the Merlon Australian Share Income to do my own analysis?
To sort and compare the Merlon Australian Share Income financial metrics, please refer to the table above.
Has the Merlon Australian Share Income been independently verified by SMSF Mate?
This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
How can I invest in Merlon Australian Share Income?
How do I get in contact with the Merlon Australian Share Income?
Comments from SMSF Mates
SMSF Mate does not receive commissions or kickbacks from the Merlon Australian Share Income. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 Sustainable income: Paid monthly and majority franked. As the Fund’s name suggests, sustainable above-market income is a targeted outcome of our investment approach and a key objective of the Fund.
Proven Investment Philosophy: We believe people are motivated by short-term outcomes, overemphasise recent information and are uncomfortable having unpopular views.
Portfolio Diversification: The benchmark unaware approach to portfolio construction is a key structural feature, especially given the concentrated nature of the ASX200 index.
Downside protection: In addition to placing a heavy emphasis on capital preservation through our fundamental research, we use derivatives to reduce the Fund’s market exposure and risk by 30% whilst still retaining all of the dividends and franking credits from the portfolio.
Integrated ESG Approach: We believe deep consideration of governance, social as well as environmental issues – coupled with active ownership – enhances investment, business and community outcomes.
Performance Commentary - July 31, 2023 Sustainable income: Paid monthly and majority franked. As the Fund’s name suggests, sustainable above-market income is a targeted outcome of our investment approach and a key objective of the Fund.
Proven Investment Philosophy: We believe people are motivated by short-term outcomes, overemphasise recent information and are uncomfortable having unpopular views.
Portfolio Diversification: The benchmark unaware approach to portfolio construction is a key structural feature, especially given the concentrated nature of the ASX200 index.
Downside protection: In addition to placing a heavy emphasis on capital preservation through our fundamental research, we use derivatives to reduce the Fund’s market exposure and risk by 30% whilst still retaining all of the dividends and franking credits from the portfolio.
Integrated ESG Approach: We believe deep consideration of governance, social as well as environmental issues – coupled with active ownership – enhances investment, business and community outcomes.
Performance Commentary - June 30, 2023 The Fund outperformed over the quarter, returning 5.4% (after fees and including franking credits). Key positive contributing exposures during the quarter included overweight positions in AGL Energy, which benefited from the market’s realisation that operational issues impacting returns has been addressed, and that higher electricity prices relative to the company’s fixed cost base would flow through to improved earnings; and IAG, which benefited from the market’s expectation of an improving policy pricing cycle.
Also assisting were overweight positions in News Corporation, and Aurizon, as well as an underweight position in BHP. Negative contributions from overweight positions in A2 Milk, ANZ, and Alumina were not sufficient to offset these positive contributors. The risk reduction overlay was a detractor for the quarter, as expected given the underlying share portfolio returned 6.1%. The performance of the overlay was ahead of the targeted net exposure of 70% with the Fund retaining ~88% of the underlying share portfolio’s return.
Performance Commentary - May 31, 2023 Sustainable income: Paid monthly and majority franked. As the Fund’s name suggests, sustainable above-market income is a targeted outcome of our investment approach and a key objective of the Fund.
Proven Investment Philosophy: We believe people are motivated by short-term outcomes, overemphasise recent information and are uncomfortable having unpopular views.
Portfolio Diversification: The benchmark unaware approach to portfolio construction is a key structural feature, especially given the concentrated nature of the ASX200 index.
Downside protection: In addition to placing a heavy emphasis on capital preservation through our fundamental research, we use derivatives to reduce the Fund’s market exposure and risk by 30% whilst still retaining all of the dividends and franking credits from the portfolio.
Integrated ESG Approach: We believe deep consideration of governance, social as well as environmental issues – coupled with active ownership – enhances investment, business and community outcomes.
Performance Commentary - April 30, 2023 Sustainable income: Paid monthly and majority franked. As the Fund’s name suggests, sustainable above-market income is a targeted outcome of our investment approach and a key objective of the Fund.
Proven Investment Philosophy: We believe people are motivated by short-term outcomes, overemphasise recent information and are uncomfortable having unpopular views.
Portfolio Diversification: The benchmark unaware approach to portfolio construction is a key structural feature, especially given the concentrated nature of the ASX200 index.
Downside protection: In addition to placing a heavy emphasis on capital preservation through our fundamental research, we use derivatives to reduce the Fund’s market exposure and risk by 30% whilst still retaining all of the dividends and franking credits from the portfolio.
Integrated ESG Approach: We believe deep consideration of governance, social as well as environmental issues – coupled with active ownership – enhances investment, business and community outcomes.
Performance Commentary - March 31, 2023 The Merlon Australian Share Income Fund returned 0.2% (net of fees & including franking credits) for the March quarter, under-performing the benchmark, which returned 3.1%. This relative performance should be viewed in the context of a three-year outperformance of 5.1%(including franking) per annum. As expected, this performance was delivered with consistent monthly income, while the volatility of the last 3 years was significantly reduced by the structural risk reduction overlay. From the depths of the market downturn at the onset of the global COVID-19 pandemic, which at the time we published our ‘Covid Roadmap’, the underlying share portfolio has returned 102%, a figure our internally portfolio construction framework (PCF) estimated at the time. This compares to a 64% return for the ASX200.
Performance Commentary - February 28, 2023 Sustainable income: Paid monthly and majority franked. As the Fund’s name suggests, sustainable above-market income is a targeted outcome of our investment approach and a key objective of the Fund.
Proven Investment Philosophy: We believe people are motivated by short-term outcomes, overemphasise recent information and are uncomfortable having unpopular views.
Portfolio Diversification: The benchmark unaware approach to portfolio construction is a key structural feature, especially given the concentrated nature of the ASX200 index.
Downside protection: In addition to placing a heavy emphasis on capital preservation through our fundamental research, we use derivatives to reduce the Fund’s market exposure and risk by 30% whilst still retaining all of the dividends and franking credits from the portfolio.
Integrated ESG Approach: We believe deep consideration of governance, social as well as environmental issues – coupled with active ownership – enhances investment, business and community outcomes.
The Fund aims to provide a higher level of tax effective income with a lower level of risk than the S&P/ASX 200 Accumulation Index, whilst also aiming to outperform the benchmark on a total return basis over the medium to long term.
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