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 The
Companion Advisor: Techniques
& Methods
Benefiting from a changing interest rate environment
In and around the markets - An advisors
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Contributed by Franklin Templeton Investments
A Companion Advisor Article
| Investor profile |
Beatrice Bell
Status: 68, married
Portfolio size: $600,000, registered
Fixed income portion: $450,000 |
THE SCENARIO
Conservative Investor(s) in a search for income today may be concerned
about the impact of changing interest rates on their investments' real
return potential. Two common approaches to manage portfolio uncertainty
are diversification and active management. However, strategies for acheiving
these goals can vary.
Objectives
- Capital preservation
- Predictable monthly retirement income to maintain current lifestyle
- Investments with low risk and moderate growth
What the Advisor sees as as challenge
- Provide stable income and moderate growth in an unpredictable interest
rate environment
- Implement a simple and easy-to-monitor diversified solution
- Recommend an actively managed solution from a trusted investment
manager with a proven long-term track record
- Simplify business administration with a single ticket solution
WEIGH THE OPTIONS
| Option #1: Build a "do-it-yourself"
portfolio of income investments that cover the main types of income
gereating vehicles |
| "Do-it-yourself" portfolios
can provide choice, allowing individual investments to be hand picked.
However, this approach requires constant monitoring, continual stock
analysis and frequent rebalancing. In addition, it involves considerable
investing time and effort on the part of the advisor. |
| Option #2: Implement an
actively managed diversified income portfolio from a trusted money
manager |
| Active management by a trusted
money manager enables a portfolio management team to quickly take
advantage of current market conditions by reallocating asset mix.
It requires less ongoing monitoring and analysis by advisors and provides
automatic rebalancing. This option can be a simple solution, easy
to implement and understand, ensuring an optimal mix of investments. |
The Marketplace challenge - taking a closer look.
Interest rates are always changing, therefore the need to manage interest
rate risk in a portfolio is essential. As with equities, diversifying
income type portfolios across asset classes, geographic regions, sources
of income and market capitalizations can protect investments from sharp
interest rate movements.
To illustrate this type of diversfied actively-managed solution and one
that can help position the portfolio to benefit as different asset classes
outperform is Franklin Templeton Diversified Income Portfolio. Its makeup
provids nine independent sources of income, it's one of the most diversified
actively managed solutions currently available. The Portfolio's wide range
of income assets, including income trusts, delivers low volatility with
consistent income.
| Volatility - 2 year Standard
Deviation |
 |
CONSISTENT, TAX-ADVANTAGED INCOME STREAM
What are we looking for: Stable income that provides reliable distributions
each month.
With a more attractive after-tax yield compared to traditional fixed
income assets, the Portfolio's after-tax yield is 50% higher than a 5-year
GIC. To achieve the same after-tax yield, investors would need a 5-year
GIC with 7.55% current yield.
The Portfolio's targeted monthly income is tax-efficient as a result
of its numerous income sources, including return of capital from income
trusts and dividend income from preferred shares.
| After-tax Yield Comparison |
 |
The historical annual compounded total rates of return for Series A units
of the Franklin Templeton Diversified Income Portfolio as of March 31,
2005, are: 1 year 5.4% and 8.9% since inception (Feb. 17, 2003). Commissions,
trailing commissions, management fees and expenses may all be associated
with mutual fund investments. Please read the prospectus before investing.
The indicated rates of return are the historical annual compounded total
returns including changes in unit value and reinvestment of all distributions
and do not take into account sales, redemption, distribution or optional
changes or income taxes payable by any securityholder that would have
reduced returns. Mutual funds are not guaranteed, their values change
frequently and past performance may not be repeated.
The comments in this article or any found on this
website are not intended or should be considered investment advice or
tax advice to any party, nor should they be relied upon to replace specific
professional advice. Before acting on material contained herein. Readers
should seek advice that is appropriate to their personal circumstances
from a professional advisor.
For more
information on this subject, consult with your Fiscal Agents representative
or call (905) 844-7700.
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, Fiscal Agents Money Management Newsletter
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