What is WAM Income Maximiser | One Year Update

Added: 2026-05-30

[00:00:04]Hello and thank you for joining us. My name is Tommy. I'm in the investor relations team here at Wilson Asset Management and today I'm joined by Damien Bowie, the portfolio strategist of WMX, that's WAM Income Maximiser. We will be discussing some of the key points around how WMX generate income and how the portfolio works today.

[00:00:25]So, at a high level, what was WMX designed to do?

[00:00:30]>> So, WMX is designed to pay shareholders a reliable and strong monthly income. Uh so, we want to get the monthly income um up to a level which actually compensates you for inflation and is more uh than what you get if you put it in the bank.

[00:00:48]Um on top of that, WMX is really designed um not just to um give you the income, uh but hopefully we're actually generating a bit of uh capital growth in the background.

[00:00:59]The thing about the capital growth that WMX will generate is that uh it comes from multiple sources. Uh and because it comes from multiple sources, um some things are going up, uh some things are not going up as much or maybe even going down. It actually gives us a very smooth profile um uh for capital growth. Um so, you can think about it as sort of a a more slow and steady form of capital growth while also continuing to generate that income in the background uh which will satisfy anybody looking for um you know, compensation well in excess of the RBA cash rate.

[00:01:32]>> And how does the portfolio actually generate those returns through both equities and >> Yeah, that's a great question. So, um one of the things that's really unique about WMX as a LIC is that we receive um a lot of income ourselves, which we then pay out to our shareholders. So, from stocks, uh we get a whole lot of dividends um and from um the debt instruments that we invest in, we get a lot of interest payments. And so, we take those, we package them up, and then we pass them on to shareholders. And uh what our goal is is to make sure that what we're actually receiving from income pretty much covers uh what we're paying you, the shareholder, uh in income as well. And um obviously there's a capital growth element that we're looking to generate as well. Um and we can uh obviously look to uh support um those distributions from that pool as well. So, uh the way we're doing it is to get the income from multiple sources um and to make sure that the income that we're getting is high enough or close enough uh to what shareholders actually need, and the capital growth will make up for the rest.

[00:02:37]>> So, that's sort of the passive income there is enough to almost cover the target income there.

[00:02:41]>> That's exactly right.

[00:02:42]>> And everything else comes on top.

[00:02:43]>> Yes, that's right.

[00:02:44]>> Is there an example of a particular company that you can really see that disparity between the equities and the debt side?

[00:02:51]>> Yeah. Absolutely. So, um you know, lots of different companies offer for lots of different types of securities. Uh Commonwealth Bank is uh a prime example uh where obviously you could put your money in a short-term deposit, um but you could also invest in some of their debt instruments. Some of them give you an interest rate which is fixed over a very long period of time, and some of them give you an interest rate which moves up and down every quarter with the RBA cash rate. Um right now uh CBA has got uh a lot of debt instruments um that actually mature uh around 2046, and those instruments are actually paying you a fixed interest rate for that whole period of around 6.6% Um in contrast, if you look at the equity, the common equity that CBA is offering, um even if you allow for franking, uh the dividend yield on those uh CBA shares is actually less than 4%.

[00:03:42]Um so, uh already just looking across the different securities that CBA has on offer, uh you can already see where the reward for risk is actually highest.

[00:03:52]>> So, it's actually much safer >> It is.

[00:03:55]>> on the debt component.

[00:03:56]>> It is. It is.

[00:03:57]Much safer and much better value. Um Yeah, than than you would be getting on shares.

[00:04:03]>> Great. And so, we often hear shareholders talking about the monthly dividend versus the annualized yield.

[00:04:09]>> Yes.

[00:04:09]>> How would you describe the two?

[00:04:11]>> Yeah. So, I think when most people think about annual, they themselves are looking back at what they have received over the prior 12 months. Um and you know, that's a perfectly valid way to be looking at the dividends that WMX is generating.

[00:04:26]Uh it's just that WMX obviously it's only been around for a year.

[00:04:31]And it took a little bit of time to get the dividend up to the full run rate of where we needed it to be because that's what happens with a new fund. So, if you're looking back over the last 12 months, you'd be saying, "Well, actually the dividend that I've got over 12 months hasn't really met RBA cash rate plus 2.5%." Uh but one of the things that we guided to was that we would only get the monthly dividend um times 12 up to a level which was sufficiently above the RBA cash rate by June of this year.

[00:05:02]Now, the good thing is that we've actually done it by April. So, from here on end, if investors want to be looking at things from you know, a rolling 12-month view, you'll start to see actually the results are flowing through now.

[00:05:15]Um the most important thing is yeah, we have to think about the monthly dividend is only a monthly number. So, if for example, I'm getting 0.6 cents per share, um that doesn't mean 6 cents, it means 0.6 cents per share. And that will become 7.2 cents per share.

[00:05:35]You know, obviously if you hold it and it gets multiplied by 12 for 12 months.

[00:05:40]So, there is a little bit of patience involved I guess with the journey of WMX starting out. But the good thing is when we talk about a monthly run rate, um, if you talk about the monthly dividend that people would have gotten in April and you multiply that for by 12, so you just assume that it's actually staying the same for the next 12 months, uh, then that rate, um, of dividend, um, is about 7% relative to the IPO price.

[00:06:03]>> Great. And why would you combine equities and debt in a portfolio? What makes that combination attractive?

[00:06:09]>> Yeah. So, uh, usually what you do with, um, these sort of multi-asset portfolios is you put two different two or more different things together and the idea is that some will move up, some will move down and on average you'll win. Uh, we call that diversification. Uh, so when you decompose how the portfolio has gone, um, at the end of every year or every 6 months, you will see some losers and you will see some winners. Uh, but what you'll find consistently is that the winners, um, are basically more than offsetting, uh, the losers in terms of performance. Uh, so that's diversification and that's the most common reason why, um, investors like to put equities and debt together because they don't always move in sync.

[00:06:51]Um, having said that, um, we have additional reasons why we want to have a portfolio that like this to generate income.

[00:07:00]So, one of the key issues with trying to generate income only from equities is that you're buying essentially high dividend yield stocks. Uh, but buying high dividend yield stocks also means buying companies that are cheap. Um, and a lot of companies, particularly in markets nowadays, that are cheap are cheap for a reason.

[00:07:20]Um, and so companies that you buy that are cheap for a reason, they often don't turn around very quickly.

[00:07:26]Um, and so, um, if the cycle were to take a turn for the worse, actually you would lose even more on those cheap companies. We call those value traps.

[00:07:35]Um, in contrast, if you had a debt instrument and we had a slow down and we go into a rate cutting cycle, actually the debt would go up in value. So, having debt as an alternative source to equities, um actually allows you to get better yield and safer yield.

[00:07:53]What that means is that if we have a lot of debt in our portfolio, uh the equity side is actually freed up to do what it needs to do. If it's the right time to be harvesting dividends, then it will do that. If it's the right time to be generating capital growth, it will do that. Or if it's uh the right time to be preserving capital, then hopefully we have more debt than we have equity at that point.

[00:08:12]>> Yeah. And so, some shareholders have actually noticed that the debt component of the portfolio has gone up.

[00:08:19]>> Yes.

[00:08:19]>> What is the reason? I know that you've touched on CBA and some of the reasons behind that, but could you just expand on why that is?

[00:08:26]>> Yeah, so our portfolio um to start off the year was actually very heavily in favor of equities over debt, and we have uh made the allocation much more 50/50 now between debt and equity.

[00:08:36]Um and just to recap, our uh benchmark, uh you know, through the cycle, we should have been 60% allocation to equities and a 40% allocation to debt.

[00:08:46]So, compared to that benchmark, uh we're actually a little bit underweight on equities and a little bit overweight uh on debt at the moment. So, I just wanted to sort of clarify that position. Why have we done this? Uh and why have we done this in particular when we're talking about the Reserve Bank of Australia raising uh the cash rate? Why we doing it when inflation seems to be a very topical issue at the moment? Um the key reason for us over above you know, the attractiveness of some of these um instruments that we're buying is that we think that we're navigating a peak in the RBA cash rate. Uh we think that in 2027, the RBA will probably be cutting the cash rate um as we've seen the impact of a slowdown on inflation. Um so, that's a very big thing uh for us.

[00:09:30]Uh but then, as as we alluded to before, the value on offer in the debt space is actually quite compelling. So, if I told you that uh for the next 20 years you could lock in a CBA uh debt instrument that will pay you 6.6% per annum, um I think most shareholders would be pretty happy with that. Um so, it's kind of a bit of insight as to why we've we're doing that. Uh we think that actually we're in an environment where it pays to be contrarian uh and to position for longer-term interest rate cuts.

[00:09:58]>> Yeah, but you've sort of kind of answered my next question there really, which was about how we are generating that income on a monthly basis and how we have that confidence of that income.

[00:10:07]>> Yes. And so, really there's that passive income that's coming through there.

[00:10:09]>> Yes. Yes. No, that's right. So, um the debt side um if we've locked in these um large-ish interest payments for a long period of time, that will continue to generate the income that investors are wanting. And then uh on the equity side, uh we can basically um change the characteristics of the stocks that we want. So, if we think that it's actually time for stocks to be paying dividends and those sorts of stocks are in demand, then we'll go that way. Um alternatively, if we think that it's a time for capital growth, then we will pursue the capital growth uh with the equity instruments and allow the debt instruments to do their thing, and then we'll package it up, and then we'll give uh the returns uh back to shareholders that way.

[00:10:50]But the goal will always be to make sure that the um interest and the dividend payments that we're getting uh from the things that we invest in are pretty close uh to the dividends uh that we're distributing back to shareholders, um so that we meet uh that RBA cash rate plus 2 and 1/2% target minimum um after franking.

[00:11:08]>> So, at the moment it's May of 2026 that the RBA have just hiked rates.

[00:11:13]>> Yes.

[00:11:14]>> If how can uh shareholders expect the portfolio to be managed going forward through the next three few years?

[00:11:20]>> Yeah. So, um the thing about uh this particular part of the cycle is um as interest rates sort of rise from here, or even the high level of interest rate is worth considering, We should expect economic growth to slow.

[00:11:35]And economic growth will probably be slowing most clearly in countries like Australia, countries regions like Europe where they're net oil importers. They're hurting from the fact that the oil price has gone up so much. So higher petrol prices, higher interest rates, higher uncertainty, maybe a little bit of fiscal restraint, these things could contribute to slowing growth.

[00:11:58]Slowing growth means that for the more cyclical sectors and companies, there probably will be some earnings downgrades.

[00:12:05]Not to mention some of the cost pressures that they're facing into a slowing growth environment because they can't pass on the cost pressures easily to their end customers.

[00:12:14]So what that means from a stock selection perspective is that we need to have an eye on higher quality stocks that are much more resilient to the cycle that can preserve their profit margins and continue to grow their volumes in somewhat more challenging times.

[00:12:29]When you go for higher quality type stocks, typically you find that you will pay a little bit more for them, which means that the dividend yield could be a little bit less.

[00:12:39]And the saving grace there is that you're you're still generating an income, but the stocks that you'd be buying would hopefully be leading the equity market as it grinds higher into a slowdown.

[00:12:51]Where you we would actually go a little bit more heavy into bonds is when it becomes very obvious that the Reserve Bank of Australia actually needs to cut interest rates. And that could be because has already started to peak and come down or it could be because a slowdown is worse than anybody actually thought.

[00:13:07]So that's how we navigate this. We're hoping that in the initial phases we've got the right sorts of stocks that are resilient to the cycle, resilient to being obsolete from AI and technological change. While we have interest interest rate instruments that are positioned for longer term interest rate cuts. And then when we actually see the interest rate cuts, uh then we uh start to reassess things.

[00:13:30]>> Great. So, you can be quite strategic and nimble with your position >> Absolutely. I've allocated the portfolio.

[00:13:36]>> That's right. Um so, this is very much an active uh portfolio. Uh we're not there to sort of set 60% of the money in equities and 40% of the money in debt and just set it and forget. Uh we will move that around quite a lot. And between within the equity basket and within the debt basket, we'll also be moving around the types of securities that we're buying.

[00:13:56]>> Great. Well, thank you very much, Damian.

[00:13:58]In the next video, we will be looking back at WMX's first year and what WMX has delivered for shareholders so far.

[00:14:05]Thank you.

[00:14:06]>> Thanks, Tommy.