Investor Insights - Monthly news for investment professionals 17 October 2016

As another year draws closer to an end, it is prudent to turn attention towards the New Year ahead. In particular, from 1 January 2017 many pensioners will be earning significantly less each fortnight as a new assets test takes effect.

The big losers under the new arrangement are part-pensioners. According to research, some 91,000 part pensioners will lose their Age Pension in full, and a further 235,000 part pensioners will have their payments reduced. Some part-pensioners face reductions of over $400 per fortnight to their current situation. Anecdotally, and perhaps most alarmingly, many aren’t even aware the changes are coming!

All this means there will be lots of investors seeking to improve income streams in the very near future, however the issues of sequencing risk and longevity risk are more relevant to these investors than ever. The challenge, in the current low rate environment we operate in, is to generate income without exposing the investor to undue risk: Investors cannot afford capital losses nearing or during retirement but we are also living longer, so we don’t want the money to run out either!

There are options

It is widely known that Australian retirees and investors are holding a lot of cash either in cash accounts or term deposits. This position has been left largely unchallenged as investors have let their equities exposure do the heavy lifting in their portfolios, notwithstanding the hunt for income which has been covered previously in this column. Assuming investors’ positions are set in their equities portfolios, investors are going to investigate strategic ways of allocating their cash to boost incomes.

One option to meeting income requirements is Annuities. Annuities represent the exchange of a lump sum for future cash flows. By investing with an annuity provider, the provider guarantees to pay you an amount each month for a set term, be it, five, ten, fifteen years or a lifetime. The set return is usually comprised of actual returns generated plus a principal component being paid back each month.

ASIC’s ‘MoneySmart’ website lists the pros and cons of Annuities as follows:

  • Guaranteed income source
  • Tax benefits (various)
  • Peace of mind

It lists the drawbacks as:

  • You cannot take out your money as a lump sum
  • You cannot choose how your money is invested by the fund manager
  • You may not be able to transfer to an account-based pension
  • Over the long term, an annuity might pay less than a market-linked investment

An Annuity hits the sweet spot in terms of income, but its drawbacks go against the grain of what we understand investors want, being:

Flexibility: The world changes rapidly. Ready access to liquid funds are important.
Transparency: Investors need to understand how their funds are invested so they can make reasoned, considered decisions.
Income: Investors need their incomes to be market leading, with minimized risk and no capital losses.
Longevity: Investors need their capital at the end of the term, rather than drawing it down monthly to make up the returns.

La Trobe Financial as an alternative to Annuities:

What if you could achieve a strong income without locking funds away for 5, 10 or 15 years? By allocating funds strategically within the La Trobe Australian Credit Fund, investors have the potential to achieve a strong income, with great flexibility and capital stability. As market conditions change, your investment allocations can be altered to suit your appetite and the economic environment of the day.

By strategically allocating to our 12 Month Term Account (12TA) and Classic 48 hour Account (C48A), investors can replicate an annuity while retaining a great deal of control and flexibility. The following table demonstrates a potential return scenario for an investor:

Return (%pa) Sum invested
12 Month Term Account 5.20% $80,000
Classic 48 hour Account 3.20% $20,000
Total Invested $100,000
Monthly income $400.00
Annual income $4,800
Blended return 4.80%

The above structure might suit an investor seeking income, while keeping an amount available for a rainy day. By harnessing the return profile of our 12TA and achieving a return of 5.20%pa paid monthly the investor targets a strong income stream. By allocating $20,000 to our flexible C48A at 3.20%, the investor keeps a good amount free in case of an emergency or unforeseen expense.

Together and most importantly, in their allocation they still enjoy a strong blended return of 4.80%pa.

Benefits of this approach include:

  • Potential to earn a strong income without the necessity of capital drawdowns (although note that returns are, of course, variable and are not guaranteed)
  • Flexibility of redemption profile
  • Flexibility of annual reviews and redemptions
  • Preservation of capital / capital stability
  • Underlying simplicity and transparency of the asset class

La Trobe Financial Product

La Trobe Financial has performed with stability, consistency and reliability for many years. The stability of our performance doesn’t lend itself to exciting, attention-grabbing press releases and updates but frankly that’s fine with us. As an alternative to Annuities, La Trobe Financial’s 12 Month Term Account represents the partner of choice for financial advisers across Australia.


There is a wave of part-pensioners about to need assistance in replacing an income stream they don’t yet know they’re losing. La Trobe Financial offers products and opportunities to provide flexible, capital stable, annuity-like income solutions to investors to meet this need.

With apologies to John Lennon, So this is Christmas, and what have you done… about it?

Market update & investor briefing

Scheduled - Thursday, 27 October 12:00p AEDT

Click here to register

Best regards,

Chris Andrews
Vice President,
Chief Investment Officer

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Latest Articles:

08/09/2016 - The challenge of our times
04/08/2016 - Track record of winning returns
07/07/2016 - Investing for the long term


Contact Investment Team

Connect with La Trobe Financial:          
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333 Collins Street
Melbourne VIC 3000
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Sydney NSW 2000
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The above awards and ratings were given to the 12 Month Term Account within the La Trobe Financial Credit Fund and may be viewed here

La Trobe Financial Asset Management Limited ABN: 27 007 332 363 and AFSL No: 222213 is the issuer and manager of the La Trobe Australian Credit Fund. It is important for you to read the Product Disclosure Statement for the Fund before you make any investment decision. The PDS is available on our website or by calling 1800 818 818. You should consider carefully whether or not investing in the Fund is appropriate for you.

* The rates of return from the Fund are not guaranteed and are determined by future revenue of the Fund and may be lower than expected. Investors risk losing some or all of their principal investment. The investment is not a bank deposit.
- Past performance is not a reliable indicator of future performance.
- Withdrawal rights are subject to liquidity and may be delayed or suspended.
- The Classic 48 hour accunt requires 2 business days notice for a redemption request
- The award and ratings were given to the 12 Month Term Account within the La Trobe Australian Credit Fund.
- Any rating is only one factor to be taken into account in deciding to invest.

1. Zenith's "recommended" rating indicates that it has high confidence in the manager meeting its objectives. The Zenith Investment Partners ("Zenith") ABN 60 332 047 314 rating referred to in this document is limited to "General Advice" (as defined by section 766B of Corporations Act 2001) and based solely on the assessment of the investment merits of the financial product on this basis. It is not a specific recommendation to purchase, sell or hold the relevant product(s), and Zenith advises that individual investors should seek their own independent financial advice before investing in this product. To view the relevant research information, please visit The rating is subject to change without notice and Zenith has no obligation to update this document following publication. Zenith usually receives a fee for rating the fund manager and product against accepted criteria considered comprehensive and objective.
2. SQM Research - 4 stars to 4.25 stars - superior, suitable for inclusion on most Approved Product Lists. To view the relevant research information, please visit This rating will not take into account your, or your clients' objectives, financial situation or needs. It is up to investors to consider whether specific financial products are suitable for your objectives, financial situation or needs. Research houses receive a fee from La Trobe Financial for rating the product.
3. Lipper Leaders Rating Total Return (Score – 5) Lipper Ratings for Total Return reflect funds’ historical return performance relative to peers. The ratings are subject to change every month. The highest 20% of funds in each peer group are named Lipper Leader or a score of 5 for Total Return. Lipper Leader ratings are not intended to predict future results and does not guarantee the accuracy of this information. More information is available at Thomson Reuters Copyright, All Rights Reserved.
4. Australia Ratings (AFSL 346138) makes every effort to ensure the reliability of the views and rankings expressed in its reports and those published on its websites. Australia Ratings research is based upon information known to it or which was obtained from sources it believed to be reliable and accurate at time of publication. However, like the markets, it is not perfect. This report is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore discuss, with their financial planner or advisor, the merits of each rating for their own specific circumstances and realise that not all investments will be appropriate for all subscribers. To the extent permitted by law, Australia Ratings and its employees, agents and authorised representatives exclude all liability for any loss or damage (including indirect, special or consequential loss or damage) arising from the use of, or reliance on, any information within the report whether or not caused by any negligent act or omission. If the law prohibits the exclusion of such liability, Australia Ratings hereby limits its liability, to the extent permitted by law, to the resupply of the said information or the cost of the said resupply.

La Trobe Financial is one of Australia's leading independent credit specialist Fund Managers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Credit Funds under AFSL 222213. It employs over 150 staff and has managed over AUD$10 Billion covering over 100,000 investment grade assets since inception in 1952.

Copyright 2014 La Trobe Financial. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial.

La Trobe Financial Services Pty Limited - Australian Credit Licence Number: 392385
La Trobe Financial Asset Management Limited - Australian Credit Licence Number: 222213

This publication does not constitute financial advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek your own financial or other professional advice before acting or relying on any of the content.

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