Capital is merely the tool used to create the income, not an objective in its own right. With perpetual trusts, our primary risk consideration when setting the investment philosophy and asset allocation is long-term inflation risk. The investment aims of such Perpetual Trusts are to generate a high level of income while maintaining the real value of capital.
The income generated is a major factor in determining the appropriate asset mix and whether shares held should be all Australian or include offshore.
We believe that Australian shares with franked dividends should form the core investments of a perpetual charitable trust, given domestic companies tend to have higher dividend yields and charitable trusts can receive refunds of franking credits on Australian dividends.
However, international markets provide access to numerous industries that are poorly represented locally and, at times, divergent economic performance or Australian dollar weakness can bolster the case for including some overseas equities.