Plato Income Maximiser LIC Gets The Yield Philosophy Right

By James Dunn | More Articles by James Dunn

A listed investment company (LIC) with a difference is heading to the Australian Securities Exchange (ASX), with the imminent listing of Plato Income Maximiser Limited. While the Plato Income Maximiser is not the first income-oriented LIC on the exchange, it will be the first to target paying monthly franked dividends.

The LIC will give listed access to the same strategy that defines the Plato Australian Shares Income Fund, which Plato Investment Management Limited has run since September 2011. The Plato Australian Shares Income Fund invests for income firstly, but seeks also to generate capital gain – it has a ‘total return’ focus. This dual purpose has achieved a total return of 14.0% p.a. since inception to 31 December 2016, with 9% p.a. of that coming from income, and 5% p.a. from capital growth.

“Our fund has two objectives,” says Plato Investment Management managing director Don Hamson. “We have an income objective, to get more income than the market, including franking – but we think it’s also important that for an actively managed equity fund, that it beats the benchmark. In total return terms, we want to outperform the market. We think that’s a bit unique, because for a lot of income funds it’s all about generating the income.”

The IPO of Plato Income Maximiser is seeking to raise up to $220 million, with the ability to accept an additional $110 million in over subscriptions. The IPO has an issue price of $1.10 per share. Additionally, investors will receive one option for every share issued under the offer.

The Plato Income Maximiser offer opened on Thursday and the broker firm will close on 13 April 2017. The general offer and priority allocation closes on 21 April 2017, with the shares expected to list on the ASX on 5 May 2017, under the ASX code PL8.

The fund on which the LIC is based is a long-only equity income fund managed specifically for zero-tax investors who can utilise the full rebate of franking credits, which are self-managed super funds (SMSFs) and charities. Hamson says the LIC is, as it is named, an income maximiser fund, but it can also be construed as a capital management fund, because an essential part of the strategy is watching the capital management of the stocks in the portfolio. A distinguishing feature of the strategy is that it aims to deliver higher yield without taking on large sector biases, such as overweighting the banks.

“We’re looking for potentially above-average but sustainable income from dividends, plus we qualitatively assess the prospects for special dividends and buybacks. But we’re active fund managers – we’re not looking simply to buy the top yielders, because a lot of those at any time will be dividend traps. We buy stocks that we expect to outperform the market, and we want to have a broadly diversified portfolio, of about 90 to 100 stocks at any time.

“When we buy a stock for income, we effectively work out what the expected total return is going to be, we assess whether we think it’s going to outperform the market or not. If we think a stock is going to under-perform the market, we won’t own it, even if it’s trading on a high yield,” says Hamson.

Contrary to what many investors might expect, Hamson says this means the fund will not always hold an overweight position in the bank stocks. “At the moment we’re index-weight banks. We will be overweight banks at certain times, for example, we were overweight CBA last month, when it went ex-dividend. Once we’ve got the dividend, and hold the stock for more than 45 days, we get the benefits of the franking credits,” he says.

“We can use that money to go elsewhere, where there will be income paid later in the period. We’re actively moving the portfolio around to get more dividends – it’s an actively managed strategy. That’s why people pay us to do it. If we just sat there and the fund was always overweight banks, people could do that themselves,” says Hamson. By actively trading the fund to capture income, he says Plato aims to generate more income than the market, without using derivatives.

“We understand the franking account balances, we go into the annual reports and get down and dirty and find out what their franking account balance is, so we know which companies have the capacity to pay a special dividend, or do a buyback,” he says.

The broad universe for stock candidates for Plato is the S&P/ASX 300. “The vast majority of our holdings are S&P/ASX 200 stocks, but we have quite a few sub-100 stocks, with nice fully franked yields, which we like. Some of them have been great dividend earners. But you have to do your homework – some of those stocks have cut their dividends, you have to be careful in those areas. Then again, BHP cut its dividend by 80% last year, so it’s not only the small stocks where you can see that.”

Hamson says the reason for launching a LIC is that there is a large investor base that doesn’t use managed funds. “There’s a large number of SMSFs out there that we just don’t access, because they don’t like to use managed funds, they tend to like listed assets and use brokers. So we wanted to access that market through a listed vehicle.

“We would expect the investor base to be largely SMSFs and investors who like income and value the franking credits. In the current world there is a bit of a drought for income in most asset classes,” he says. “In a low-return, low-rate market, retirees are looking for specialist, high-yield equities strategies to supplement traditional sources of income like cash and fixed income.

Another attribute Hamson expects to appeal to SMSFs is the diversification inherent in Plato Income Maximiser. “A lot of SMSFs and retirees are holding the major yield stocks – the banks, Telstra, Wesfarmers etc. – for income. We believe there is significant stock-specific risk doing that Plato is able to manage such risks through active management and a much better-diversified portfolio.

“One of the attributes of our fund is that we’re not overweight the banks, so it’s not really going to significantly increase your banking exposure. If you sell a bank share and go into this you’ll be significantly reducing your bank exposure,” he says.

Longevity risk is another important factor that retirees can’t ignore. As such they can’t ignore capital growth – they need some replenishment of their capital, as well as drawing down on it for income. The capital growth aspect of Plato Income Maximiser means the fund seems to handle both of the tasks that SMSFs in pension phase need. The monthly flow of fully franked dividends that the LIC aims to pay is likely to appeal to investors who require a dependable income stream from their investment portfolio, but want to avoid eating into their capital as they manage longevity risk. Yet being a long only equity strategy, the Plato Income Maximiser also provides the potential for capital growth.


To learn more about Plato Income Maximiser Limited click here.

About James Dunn

James Dunn was founding editor of Shares magazine and has also written for Business Review Weekly, Personal Investor, The Age and Management Today. He was subsequently personal investment editor at The Australian and editor of financial website,

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