Low interest rates have made it increasingly difficult to generate a decent income through investing. Could the eInvest Income Generator Fund (ASX: EIGA) be the solution?
What Are ETFs?
Exchange-traded funds, or ASX ETFs, are investment funds that are listed on a stock exchange and provide exposure to a range of shares or assets with a single purchase.
This video explains:
eInvest Income Generator
The eInvest Income Generator is an actively-managed ETF that aims to outperform the S&P/ASX 300 Franking Credit Adjusted Daily Total Return Index. If you don’t know what franking credits are, have a look at this article because they’re important for this ETF.
The EIGA fund invests in a portfolio of 30-40 shares of ASX-listed companies and targets a gross dividend income yield of 7% per year from its monthly distributions. Gross income yield includes the impact of franking credits, so the targeted return is approximately 5% per year from dividends and 2% from franking credits. There are rules about which investors can receive franking credits.
The EIGA fund selects companies based on a fundamental approach and looks for capital preservation and balance sheet strength. In other words, I’d say don’t expect much movement in the share prices, this ETF is about dividends.
The current top five holdings of EIGA are the big four banks plus BHP Group Ltd (ASX: BHP), which together make up 35.5% of the portfolio.
The distribution yield over the last 12 months was 11.97%, and the gross distribution yield (including franking credits) was 17.45%. Over the same period, the share price is down around 2.9%.
Fees & Risks
As a managed fund, EIGA’s management fee is slightly above most passive ETFs at 0.8% per year.
In terms of risks, it’s important to understand how franking credits work. This ETF is set up to take advantage of franking credits and is designed for investors who can fully utilise the credits. If you’re unable to use the franking credits, performance will not be as high as it seems.
The performance figures also look very impressive over the last 12 months, although keep in mind many companies cut their dividends in August with FY19 reports, so perhaps the ongoing return from EIGA could be expected to be lower than the last 12 months.
My Take On EIGA
If you’re not concerned about capital growth and you’re simply looking for a managed income option, this might be an ETF worth considering if you can fully utilise the franking credits. Just be sure to consider the fees and approach the fund with lower expectations than what was delivered over the last 12 months. Also, it’s not impossible to find an ASX ETF that can offer some long-term growth and regular dividends.
For our number-one ETF pick, check out the free report below.
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Disclosure: At the time of writing, Max does not have a financial interest in any of the companies mentioned.
