• Duggan Matthews - Chief Investment Officer at

The Essential Income Fund

Four years of disappointing equity market returns have left many investors feeling anxious about their financial futures. The common narrative used to ease concern is that investing is about the long-term and that better returns are around the corner. This is all good and well pre-retirement when investors are continuously making contributions. However, it is not so simple for retired investors who need income from their investments for 20 to 30 years.

Unlike pre-retirement, the requirement to continuously withdraw from a portfolio significantly increases the risk of running out of capital (longevity risk) when market returns are poor. The task of successfully navigating a low-return environment is complicated further with a choice of over a 1000-unit trusts in South Africa. Remarkably, even with all this choice, retirees are still encouraged to only draw 4% from their savings to ensure a sustainable retirement income. This is far too low for the majority of retirees (the average drawdown in SA is approximately 6.6%) and this suggests an alternative approach is needed.

Spend the income not the capital for a better retirement outcome

Given the challenge facing retirees, Marriott has launched the Essential Income Fund. Designed and managed for South African investors looking to maximise their retirement lifestyles without the risk of running out of capital, the Marriott Essential Income Fund offers a simple, low-cost and effective means for retirees to navigate the current low-growth environment.

With an exclusive focus on retired investors, we have applied our signature, Income Focused approach to managing the Essential Income Fund. The portfolio’s key differentiating factors are outlined below:

Reliable, growing income

When an investor requires an income from their investment, Marriott recommends drawing only the income produced by the investment, which we refer to as the matching principle. By drawing only the income produced, investors can be assured that their capital base will not be eroded (the biggest contributor to longevity risk). To achieve this the Marriott Essential Income Fund invests exclusively in companies that have been able to pay reliable and growing dividends consistently over the long-term such as, Clicks, Growthpoint, Sanlam and Standard Bank. The dividend track records of these companies are illustrated below:

Optimal long-term asset allocation

The Essential Income Fund currently produces a gross yield of 6.9% which should grow in line with inflation over time. This has been achieved through investing in an optimal mix of both growth and higher yielding assets classes as outlined in the table below.

Source: Marriott

The Fund's asset allocation will remain relatively stable over time as we believe this is the right mix for investors looking for the highest sustainable level of inflation-hedged income.

Low cost

The annual management fee of the portfolio is 0.75% which is highly competitive.

Investor benefits