Like the idea of investing in term deposits, but are put off by the disturbingly low rates? Given that the returns on fixed income are expected to remain lower for an extended period of time, why not look at some alternatives in the form of ASX shares?
The risks associated with listed entities are a lot higher than low-risk term deposits, which are protected by the Australian Government's Financial Claims scheme for amounts of up to $250,000.
But, given that the returns from ASX shares can also be a lot higher, here are 2 options that, in my opinion, are worth considering as surrogates for fixed income.
Magellan Infrastructure Fund (ASX: MICH)
This actively managed diversified infrastructure fund invests in a portfolio of 20 to 40 infrastructure shares to ensure investors are not overly correlated to any single company, industry-specific or macroeconomic risk. It deploys the open-ended fund structure, which simply means the price at which units trade on the ASX, tends to mirror the underlying net tangible asset value (NTA) very closely.
The COVID-19 crisis has clearly been a tough time for the fund's portfolio of global infrastructure assets, which include Atmos Energy Corp, Red Electrica Corp SA, Crown Castle International Corp, and Transurban Group (ASX: TCL).
Given that this share is a long-term play, I believe it looks well positioned to benefit from the return to normalcy as the threat of the coronavirus dissipates, with the eventual news of one or more proven vaccines likely to provide a massive kicker.
The fund has a market cap of around $626 million at the time of writing, and typically pays a dividend of around 3%.
The primary objective of Magellan Infrastructure is to achieve attractive risk-adjusted returns over the medium to long-term, while reducing the risk of permanent capital loss. By hedging the bulk of its foreign currency exposure, Magellan Infrastructure is also relatively well protected from adverse currency movements.
While the Magellan Infrastructure share price sits slightly below its NTA of $2.81 (at $2.80 at the time of writing), it's currently trading at an 18% discount to its 21 February high of $3.44. Three years from now, I expect the current share price will have proven to be an attractive entry point.
MCP Master Income Trust (ASX: MXT)
Listed in October 2017 as a fixed-interest credit fund, the MCP Master Income Trust provides investors with direct exposure to the Australian corporate loan market. Having been the exclusive domain of regulated banks, fixed interest credit has largely been off-limits to mum-and-dad investors.
Given that the trust's units have traded with little correlation to public domestic and international equity and bond markets, I think the trust gives investors the means to diversify their portfolios in a way that hasn't been readily available before.
The Trust aims to provide investors with monthly cash income, low risk of capital loss and portfolio diversification by actively managing diversified loan portfolios.
Like other listed credit funds, the MCP Master Income Trust was a major casualty of the COVID-19 market sell-down. The trust's share price swan-dived by over a third from $2.00 on 6 March to a low of $1.26 on 23 March, amid fears of a collapsing oil price and a flailing property market.
It has progressively regained most of that ground, courtesy of improving investor sentiment and a fall in credit spreads – in part due to the propping up done by central banks (notably the Reserve Bank of Australia, and the US Federal Reserve) – and is currently trading a little under its $2.00 NTA at around $1.90.
In my opinion, the underlying strength in MXT's share price reflects its ability to consistently deliver cash income for its investors. The trust returned 5.55% per annum over the twelve months including December 2019, and 5.45% per annum since listing in October 2017.
The share has a market cap of $1.2 billion, which puts it just outside the S&P/ASX 200 Index (ASX: XJO), and it pays a respectable dividend yield of 6.1%.
