What LICs teach us about building income portfolios
For investors who rely on a steady stream of income, Listed Investment Companies (LICs) have long been a popular choice. Because of their structure, LIC managers can choose when to pay out income, helping smooth out the ups and downs of the underlying investments — which is one reason many LICs kept paying reliable dividends even during the pandemic. LICs can also pass on franking credits even from global share holdings, since the LIC itself is an Australian taxpayer.
However, because LICs trade on the share market, their price can move away from the actual value of their underlying assets, adding an extra layer of uncertainty tied to investor sentiment rather than just the manager's skill.
A different approach to income
LICs aren't the only option for investors seeking reliable income. Private credit funds, which invest in loans rather than listed shares, offer a different way to pursue steady returns, often with less exposure to day-to-day market sentiment.
The Mountain Monthly Income Fund (Ordinary Class) is one example. Rather than investing in shares, the Fund invests in a diversified pool of loans secured by first registered mortgages, along with bonds, cash, and mortgage or asset-backed securities.
Benefits of the Fund
· Reliable monthly income: Distributions are intended to be paid monthly, offering a regular income stream.
· Focus on capital safeguarding: The Fund's underlying loans are secured, with an emphasis on preserving investor capital.
· Attractive yield potential: The Fund targets a return of the RBA Cash Rate plus 4% per annum (net of fees).
· Less exposed to market sentiment: Because the Fund isn't listed on an exchange, its unit price isn't driven by day-to-day investor demand the way a LIC's share price can be.
What to consider before investing
· Actively managed with a clear target: The Fund targets the RBA Cash Rate plus 4% p.a., giving investors a clear benchmark, though like all target returns this isn't guaranteed and actual performance may vary.
· Designed for medium-term investors: With a minimum investment term of 12 months and a recommended timeframe of 2 to 5 years, the Fund suits investors who are comfortable committing capital for a period in exchange for the potential benefits of a more stable, less liquid asset class.
· Backed by a diversified, actively managed portfolio: Returns are supported by a spread of loans, bonds, and securities, with the Investment Manager applying ongoing credit assessment and risk management to the portfolio.
· Flexible distribution approach: While monthly distributions are intended, the Trustee retains discretion over timing, allowing the Fund to manage payouts prudently through different market conditions.
As with any investment, it's worth considering how these features align with your own objectives, timeframe, and risk tolerance.
Interested in learning more?
If the Mountain Monthly Income Fund sounds like it could complement your income strategy, get in touch with our team to request the Information Memorandum and find out whether it's the right fit for your portfolio.
Source: Morningstar | Unconventional wisdom: Four options for an income investor’s next dollar - Listed Investment Companies (“LICs”)