VanEck has launched a new model portfolio, set on generating income of at least 2% more per annum than the consumer price index.
The ETF provider has drawn on research house Lonsec's portfolio construction expertise to strategically allocate assets to yield income in an era of prolonged low interest rates.
The Income ETF Model Portfolio will have greater exposure to Australian equities versus global equities in comparison to VanEck's existing portfolios. Of the portfolio's global equities allocation, higher yielding stocks and corporate bonds make up the greatest exposure.
VanEck Asia Pacific managing director Arian Neiron said the portfolio will reap income for investors.
"VanEck's new Income ETF Model Portfolio supports financial advisers in creating a simple portfolio of ETFs targeting income for retiree clients," he said.
Neiron said the portfolio launch comes at a time when ultra-low interest rates are impacting investor returns.
"Asset allocation will be key in helping investors to achieve a decent income return, because it is no longer going to come from cash," he said.
"With interest rates at historic lows, Australia has caught up to the rest of the world in having ultra-low interest rates.
"That situation is not likely to reverse anytime soon, with another official rate cut expected in the next few months, so investors seeking income will need to allocate more to income producing equities and fixed income securities to achieve a decent return," Neiron said.
VanEck predicts another rate cut during the first half of 2020.
"We believe the RBA will cut interest rates to a historic low of 50 basis points in the first half of this year," Neiron said.
He said that retirees will need to evaluate their risk profile to continue to build equity this coming decade.
"Simply speaking, cash and government bonds will not yield the income that retirees need for retirement in this new decade, which will force them to move up the risk curve," Neiron said.
VanEck said that several factors are holding back economic activity in Australia, keeping interest rates low.
"Both household-debt-to-income and house-prices-to-income ratios are very high. Other than Switzerland, Australia has the highest level of household debt as a percentage of gross domestic product in the developed world," it said.
Neiron said economic growth will continue to be sluggish indefinitely thanks to poor business investment and slowing household spending.
"Business investment too has dropped off since the end of the commodity boom, taking away an essential ingredient for economic growth," he said.
"We are also likely to see low interest rates persist in Australia given household consumption will remain subdued. Household income per capita is not increasing and wages growth remains very low, reflecting lackluster household spending," Neiron said.
"Combining all of these factors, we are likely to see below trend economic growth and interest rates remain at historical low levels for an extended period of time in Australia, which will force investors looking for income to assess new investment opportunities outside of term deposits and cash products."