A new way to access higher income with lower risk

Please note that this interview was recorded Wednesday, 10 September 2025

Australian investors have long relied on equities for both growth and dividends, but the challenge of extracting reliable, steady income has only grown harder. 

With bank yields compressing and resource payouts tied to volatile commodity cycles, retirees and those approaching retirement are increasingly asking: Where can I find consistent, dependable income without taking on undue risk?

That question sits at the heart of the Investors Mutual Equity Income Fund, now also available in ETF form under the ticker ASX: EQIN. Portfolio Manager Michael O'Neill explains that while the product is new to market in listed form, the strategy has been running since 2011 with a clear purpose: to provide higher levels of income with lower volatility.

As O’Neill put it:

“Equities would seem like a necessary evil to get that high yield and bit of participation with inflation, but if you’re going to go into equities, you need to do so in a prudent way. So the fund really targets high income and low volatility, which are essential for retirees.”

In this Fund in Focus, O’Neill outlines what makes IML’s approach distinct - namely, its active, bottom-up focus on stocks with sustainable earnings and dividend growth, rather than passive dividend stripping or high-turnover strategies. He discusses why income is harder to find in today’s market, where the team is hunting for opportunities beyond the banks and miners, and why certain “dividend traps” must be avoided.

O’Neill also shares examples of stocks that make the cut, such as infrastructure assets with inflation-linked pricing and insurance brokers with long track records of retention and growth. Importantly, he explains how the fund manages risk, why its volatility tends to be significantly lower than the broader market, and how this helps retirees preserve capital during downturns.

For the full experience, watch the video above. You can also read a short summary below. 

INTERVIEW SUMMARY

A strategy built for retirees

The Equity Income Fund was launched in 2011 with a specific audience in mind. As O’Neill explained, “It was designed specifically for retirees or people approaching retirement.” 

With cash and term deposits offering limited returns, equities have become a necessity, but O’Neill stresses the need for prudence. The fund targets “high income and low volatility,” which he says are “essential for retirees.”

Why an ETF structure matters

EQIN represents the ETF version of IML’s long-running fund. O’Neill noted the practical benefits: 

“You can imagine a lot less hassle with all the paperwork you’d have to do for a traditional managed fund. 

You can buy it on market. There’s daily liquidity, intraday pricing — just makes things a lot simpler and more flexible.”

Standing apart from other income products

According to O’Neill, the strategy distinguishes itself from many income-focused ETFs. 

“Where we differ is that there aren’t many that really focus on achieving that higher level of consistent income, but also doing so with lower volatility,” he said. 

Unlike passive dividend-stripping approaches, IML takes a hands-on role: “We’re not systematically stripping dividends, which can result in higher turnover and higher volatility. We’re playing that role of a lower-risk steadier income… a fund that retirees can rely on.”

Why income is harder to find

Income compression is real, with the ASX yield around 3.5%. 

“The culprits: banks and resource stocks. Materials and financials together are over 50% of the market,” O’Neill explained. But he warned against chasing yield blindly: 

“There’s also some sectors where you’ve got to be a bit careful targeting income for income’s sake, like the dividend traps - the companies with too much debt… or structurally declining earnings.”

Instead, the fund favours a diverse mix including “healthcare stocks, utilities, staples,” which O’Neill sees as “a better building block in terms of achieving higher income.”

Stocks that make the cut

O’Neill shared two portfolio examples to illustrate the fund’s approach. The first was Dalrymple Bay Infrastructure (ASX: DBI): 

“They own the Dalrymple Bay Coal Terminal. They get inflation-linked pricing… they get paid regardless of the throughput through that terminal. So it’s a very, very low-risk stock with a growing profile of dividends, and it pays dividends quarterly, which is uncommon.”

The second was Steadfast Group (ASX: SDF), a holding since IPO in 2013: 

“It’s grown earnings and dividends at a compound rate of 13.5% since its IPO. It’s dominant in Australasian broking and underwriting; they get 95% retention in broking to their SME clients, so it's a very stable business, and they grow organically and through acquisition.”

Managing risk and volatility

Risk management is central to the strategy. 

“Really, for us, it’s bottom-up work and the active stock picking that manages the risk,” O’Neill said. 

He explained that the focus is on companies with “steady growing profiles of cash flows that are not dependent on the cycle.” This has meant that in sell-offs, “we tend to wear, on average, about 56% of the pain in terms of our drawdown experience just by focusing on low volatility, long-term investing.”

The target outcome is also clear. 

“We are explicitly targeting 2% above the ASX index yield after fees and pre-franking, and equally importantly, if not more so, at a lower volatility,” he said. 

Historically, the fund has delivered this while keeping volatility around two-thirds of the market. For retirees, this steadier profile means “you’re not having to sell down your units… when dividends are tested and lower volatility means you’re not actually selling out at an inopportune time.”

Michael O’Neill jointly manages the IML Equity Income Fund with Tuan Luu, Portfolio Manager, IML

ETF

Investors Mutual Equity Income Complex ETF (EQIN)

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