Self-funded retirees are the target of a high dividend-chasing fund claiming to be sheltered from market shake-outs.
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The new exchange-traded fund (ETF) by BetaShares switches between blue chip stocks as they pay dividends and pays only a fraction of the brokerage that DIY super funds would incur to do the same.
It will rely on dividends rather than share price gains for its income.
Yields from dividends have been progressively rising over the past 30 years while those on bonds and deposits have fallen, research by BetaShares shows.
After taking inflation into account, the average dividend yield according to the MSCI Australia equity index has doubled from about 1 per cent since the 1990s, excluding the 30 per cent tax credit from franking, while yields on bonds have been slashed from just over 5 per cent to below 1 per cent. In real terms the official cash rate has fallen from 3.75 per cent to barely 0.25 per cent.
After counting franking the sharemarket's overall dividend yield is 5.7 per cent. Some blue chips, such as the banks and Telstra, are above 7 per cent.
The Australian Dividend Harvest Fund (ASX code HVST) will hold 10 of the top 50 of the expected biggest dividend paying stocks in the following two months.
For example it might hold BHP Billiton when it is paying a dividend and then switch to NAB. It pays a monthly dividend after taking out the 0.65 per cent annual management fee.
Since the fund is aimed at self-funded retirees there should be no tax repercussions from chopping and changing stocks as dividends are due.
Other high dividend yielding ETFs follow an index and rely on some capital growth. Nor do they trade their stocks or attempt to offer protection from market falls.
The fund should provide an income stream "that is at least double the annual yield of the broad sharemarket," BetaShares managing director Alex Vynokur says.
In fact just holding bank stocks would also achieve that, especially if you weren't worried about what their share price does.
The real twist is that it will sell futures contracts to protect the portfolio's value during times of volatility based on the advice of Milliman, a global risk manager.
This will be a "handbrake" against falling share values, Vynokur says.
"It aims to provide most of the upside in rising markets while avoiding most of the downside in periods of decline."
One investor in HVST is 87-year-old self-funded retiree Bart Plasier.
"My son is a broker at Macquarie Bank and he recommended it for me," Plasier says.
"I'm retired so I need more than the 3.1 to 3.4 per cent I'm getting in fixed deposits. And this makes monthly payments."
Although he has a $1 million share portfolio Bart doesn't entirely trust the sharemarket.
"I started investing in it three years ago because interest rates were so low and my son's a broker. But this is my first ETF.
"I like it because I don't have to worry as it has the best companies. I've already bought $150,000 (worth) and I should have bought more," he says.
