Monday 19 June 2017 by Kieran Quaine At FIIG

The MIPS Income Plus program - A high yield and high income distribution opportunity

Investors seeking both high yield and high income from bonds should consider the MIPS Income Plus Individually Managed Account (IMA) investment program

cake slices

The program takes advantage of FIIG’s unique DirectBond service, investing in a diversified mix of high coupon bearing and high yielding senior ranked investment grade and non investment grade (unrated) fixed and floating rate bonds. The combination delivers high, regular cashflow that can be distributed or reinvested.

The Income Plus investor has the ongoing option to choose to receive the
regular high cashflow into a nominated bank account, or to reinvest it.

Key benefits include:

  • The Income Plus portfolio is the only actively managed MIPS option designed to provide both a high yield and a high cashflow
  • Investors can choose to take regular income or reinvest – a unique advantage for investors, unlike that available to investors in many unit trusts, where investments are pooled and subsequently units would need to be progressively sold to achieve the same outcome
  • A $500,000 portfolio will contain 31 bonds leveraging FIIG’s DirectBond service and its capacity to trade in $10,000 parcels
  • Diverse exposure:
    • Reduces portfolio risk
    • Increases the number of payments as each bond either pays quarterly or half yearly
    • Allows the MIPS team to rebalance the investments with minimal disruption to the cashflow

The current portfolio exposure, as at 31 May 2017 in table 1, delivers the cashflow shown in table 2.


Table 1
Source: FIIG Securities


Table 2
Source: FIIG Securities

On average, in excess of $2,500 is paid per month per $500,000 investment.

Where an investor chooses to re-invest income, the DirectBond service again delivers by enabling reinvestment from as little as $10,000. If we use the above example, every four months or so, there would be enough cash to increase holdings.

When deciding how to reinvest, the Portfolio Management Team will:

  1. Rebalance the portfolio
  2. Replicate  model portfolio duration
  3. Replicate credit exposure target metrics

In simplistic terms, a $500,000 investment made on 1 June 2016 would have either:

1. Paid approximately $7,500 per quarter or $30,000 for the year to 31 May 2017 where the investor decided to distribute income

Or

2. Increased the value of holdings to approximately $531,000 by 31 May 2017, with the additional $1,000 advantage emanating from compound interest upon interest earned and kept during the period where the investor decided to reinvest the income.

Historic returns

Current investors in the Income Plus program are receiving a gross yield (distributable income) in excess of 6.00%.

The book value entry yield (currently at a gross yield of 5.94%) has historically been ‘enhanced’ through active portfolio management. Recent rolling 12 month net returns, after management fees (0.85%) and custodial fees (0.20%) have been an impressive net 5.78% and 5.15% per annum for periods end 30 April 2017 and 31 May 2017 respectively. 

See the example Income Plus PortfolioExternal link - opens in a new window as at 31 May 2017.

Refer to the following links that provide detailed discussion about the Managed Income Portfolio Service:

  1. MIPS Wholesale Investor BrochureExternal link - opens in a new window
  2. How we manage risk in high yield bond portfoliosExternal link - opens in a new window
  3. A fixed income Portfolio Manager's perspective on 'yield enhancement'External link - opens in a new window
  4. Performance matrix to 31 April 2017*External link - opens in a new window
  5. Quarterly report to 31 March 2017External link - opens in a new window
  6. Profile of the Head of MIPS and his portfolio management teamExternal link - opens in a new window

For more information, or to open an account please contact your FIIG client representative or phone 1800 010 181. 

*Relevant information extracted from website of program

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