Societe Generale Asset Management will be launching a new fund this month – the SGAM AsiaPAC Income Plus Fund.
This fund invests in the Asia Pacific developed markets, namely – Singapore, Japan, Hong Kong, Taiwan, Australia and Korea.
Stock selection will be based on dividend yield, valuation and momentum. There will also be a liquidity criteria of market capitalisation over US$2 billion and a daily volume of minimum US$20 million. A final selection of 40 stocks will be purchased. This means that each stock will constitute 2.5% of the fund’s holdings.
Depending on the market conditions, the fund will apply either a “long only” or “covered call” strategy. A cover call means underwriting call options on the underlying assets. The premiums collected will enhance the returns of the fund.
As the name implies, there will be a regular payout of cash to unitholders of this fund. The payout is a guaranteed 8% p.a. coupon based on the fund’s NAV on the anniversary date. This payout will be done quarterly.
For example, the fund has a starting NAV of $1. So for the first year, $0.02 will be paid every quarter.
For the next year, the NAV at the anniversary date will be used to determine the coupon payout. If the NAV is $1.10, $0.022 will be paid out every quarter. Conversely, if the NAV is $0.90, each payout will be $0.018. And so on for subsequent years.
Do not be mistaken that the SGAM AsiaPAC Income Plus fund can give you a guaranteed yield of 8% p.a.
Whenever unit trusts are concerned, any dividend payout is always taken from the NAV.
For example, if a fund has a NAV of $1.20 and pays out a dividend of $0.05, you collect $0.05 and the fund NAV will drop to $1.15. In terms of how much the asset is worth to you, it is pretty much the same whether the dividend is paid out or not. Add in the costs incurred for paying out the dividends and you might actually be worse off.
What is more important is how much the fund can grow on an annual basis. If it can grow more than 8%, you can collect the dividend and still enjoy capital growth of the fund. If it is less than 8%, part of the 8% you collect will simply be a return of some of your capital.
The underlying assets of this fund has an estimated yield of about 4%. Thus, there will need to be a capital growth of at least 4% for your coupons to not come from your capital.
As for the management fee, it is 1.75% p.a. (max 2.0%) for this fund.
A dividend paying fund might be suitable for someone who relies on dividend payouts for living expenses. Even then, that person can simply redeem units for cash even if the fund he invests in does not pay any dividends.
For someone who wants to stay fully invested in the markets, he or she will have an unwelcome problem of reinvesting the dividends. This also means incurring extra costs again. Update: This reinvestment problem might not exist if automatic reinvestment of dividends at no cost is available.