In our low interest rate environment, investors are finding it increasingly difficult to generate a decent income through investing. Could the eInvest Income Generator Fund (ASX: EIGA) be the solution?
Unpacking The 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 are unfamiliar with what franking credits are, check out the video below 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 regular, monthly distributions. This 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.
The EIGA fund selects companies based on a fundamental approach based on capital preservation and balance sheet strength. In other words, I’d say not to expect much movement in the share prices as this ETF is about dividends.
The current top five holdings of EIGA are the big four banks as well as 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%.
EIGA Fees And 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. The EIGA 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.
Although the performance figures look very impressive over the last 12 months, 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 View 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, provided you can fully utilise the franking credits.
However, 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 both long-term growth and regular dividends.
For our number-one ETF pick, check out the free report below.
Disclosure: At the time of writing, Max does not have a financial interest in any of the companies mentioned.