On top of my SG dividend portfolio which consists of a handful of REITs and business trusts I selected, I also commit to monthly investments in an income fund to increase the income streams and diversify the risks of my dividend portfolio.
I have chosen to invest in what is called a “balanced income fund” which is an income fund with a mix of equity and bonds that provide dividends.
My fund selection criteria
I select the income funds based on the following criteria to suit my needs:
- Decent yield – lower than the yields from the stocks I handpicked but must be higher than ten-year bond yields and bank fixed deposit rates. It is a passive investment after all and less risky than stock-picking so I do not expect sky high yields but sufficient to beat inflation and a little more.
- Low fees – the lower the better since any fees will eat into the dividend yield. Moreover I purchase my income fund via FSMOne whereby there are platform fees payable so this would inevitably affect my actual yield.
- No withholding tax – depending on the country the fund is domiciled in, there may be withholding taxes which are not ideal as the whole intention is to maximise the dividends received.
- SGD-denominated – the currency of the fund has to be in SGD to reduce the currency impact from the monthly RSP amount I contribute and the dividends that are received.
- Monthly dividend frequency – as I am currently reinvesting the dividends, I prefer a monthly dividend payout so that the amount can compound more quickly with more frequent, regular reinvestment.
Other things I consider though not as hard and fast as the above prerequisites are the geographic allocation of the investments and the underlying assets. Some debt securities in the fund could be in emerging countries which could offer high yield but may not necessarily be investment grade. Preferably, the top holdings should consist of fundamentally “good” companies with strong and sustainable cash flow that don not overlap too much. This helps to ensure stability of the dividend payable and also to diversify the sources of dividends.
Below is a quick look at two income funds that I shortlisted and am currently vested in.
|Schroder Asian Income A Dis SGD (SCHASIN)||Allianz Asian Multi Income Plus CL AMG DIS H2-SGD (ALAMAMS)|
|Fund management house||Schroder Investment Management (Singapore) Ltd||Allianz Global Investors|
|Investment objective||To provide income and capital growth over the medium to longer term by investing primary in Asian equities and Asian fixed income securities||To provide long-term capital appreciation and income through investments in equity, business trust and interest-bearing security markets with a focus on the Asia Pacific region|
|Geographical allocation||Asia ex. Japan||Asia ex. Japan|
|Fund base currency||SGD||USD (has SGD share class)|
|Fund size||SGD 4,786.67 million||USD 390.62 million|
|Fees||Annual management charge: 1.25%|
Expense ratio: 1.49%
|Annual management charge: 1.25%|
Expense ratio: 1.50%
|TTM dividend yield (based on NAV at time of writing)||5.22% (before fees)||5.67% (before fees)|
|Latest fund factsheet||More information on the fund performance and asset allocation is available here||More information on the fund performance and asset allocation is available here|
I initially bought Schroder Asian Income Fund but subsequently switched over to Allianz Asian Multi Income Fund. I was hesitant to switch over as the total returns of SCHASIN appear higher than ALAMAMS based on past performance. SCHASIN also has a longer track record and larger fund size than ALAMAMS which could arguably be important for funds due to the impact on performance, expense ratios, and liquidity to name a few.
To be fair, both funds are very similar and there is no one that stands out more than the other. In fact the difference in yield is not substantial and I can’t help but feel that I might be sweating the pennies here. But after several simulations of different investment amounts and horizon, I concluded that the pennies are worth sweating over due to the effects of compounding. Every penny counts!
Dividend yield or price growth?
Eventually I decided to switch to ALAMAMS as the overall dividend yield less fees seem to be higher than what SCHASIN offered for the trailing twelve months and that is the main purpose for my investment in an income fund – for stable and predictable fixed income. Capital preservation is not guaranteed for both of these funds and any form of capital appreciation is just a bonus.
I’ve only held this income fund for just under a year, so I guess only time will tell if my total return after considering the dividends received and any price changes is “good enough”.
Do you have any suggestions for high-yielding income funds or other forms of investments that fuss-free with relatively low risk? Feel free to share them in the comments below so all we yield-starved investors can benefit together!
Disclaimer: I am vested in the funds mentioned in this post. Any ideas listed in this post are for information exchange only and not a recommendation to act. Please do your own due diligence.