Backed by the consistency of IML’s quality-and-value approach, Investors Mutual Equity Income (ASX: EQIN) stands out as a solid choice with the potential to outperform the total-return Morningstar Category S&P/ASX 200 Index over the long term, even while pursuing an additional income objective.

Comanagers Michael O’Neill and Tuan Luu bring complementary skillsets to the strategy. O’Neill focuses on stock positioning, while Luu manages options exposures, yet the two operate collaboratively rather than in silos. This approach is further supported by the depth of talent within the broader IML team, whose extensive understanding of regulatory and structural dynamics across industries provides a distinct edge in surfacing overlooked opportunities.

IML’s quality-value philosophy relies on proven financial theory, and its process is extremely well-defined. Its philosophy often steers it toward companies with stable cash flows and mature industries, aligning naturally with a goal of generating above-market income. The firm’s investment discipline ranks among the strictest in the market, and its fundamental stock research remains extensive.

Investors Mutual Equity Income extends the firm’s broader philosophy through an options program that reflects its conservative, low-volatility ethos. Calls, which give the right to buy later at a set price, are written on stocks near the top of their valuation range and puts, which give the right to sell later at a set price, are written near the bottom—harvesting premiums when options expire and reducing entry prices or optimizing exit prices when exercised. This integrated approach boosts distributions without materially compromising capital appreciation, giving it an advantage over peers that apply a more simplistic framework.

The strategy delivered top-quartile risk-adjusted returns over the five years to November 2025, successfully capturing the value premium—which has been in recovery since 2020—while consistently upholding its promise of above-market income.

Investors Mutual Equity Income employs a disciplined, proven approach, positioning it to deliver consistent income and attractive long-term outcomes.

A time-tested process tailored for income

The strategy targets volatility below the market—similar to its sister strategy, Natixis Investors Mutual Australian—while also aiming for a yield about 2% higher. An index-relative objective avoids the need to maintain an unrealistic income level in low-dividend environments, which could otherwise compel added risk-taking—such as leaning into overvalued dividend stocks during the low-rate period of the 2010s and early 2020s. It shares the same high-powered and meticulous research engine as Natixis Investors Mutual Australian strategy, typically resulting in about 70%-80% stock overlap—though it expectedly tilts toward higher-dividend-paying stocks.

This preference is accounted for through adjustments to the firm’s baseline quality scoring framework. Further, the process employs option strategies to boost income. The thoughtfully structured options overlay also helps counter common behavioral pitfalls—such as thesis creep, anchoring, and status quo bias—by enforcing valuation-aligned entry and exit disciplines while also factoring in tax considerations such as the 45-day rule, capital gains tax discounts, and franking credits. Investors concerned about aftertax outcomes should note that dividends provide franking credits, whereas option income does not.

This portfolio primarily comprises financials, industrials, and healthcare, with stock selection favoring companies that offer earnings visibility. It generally underweights miners while avoiding sectors such as listed infrastructure, where returns rely less on business fundamentals. IML’s long-term mindset is evident, with calendar-year turnover commonly around 30%. The valuation-driven approach means call-writing is more prominent in bull markets, where IML is comfortable seeing stocks called away at valuations it deems excessive. Conversely, when markets appear undervalued, the team becomes a buyer and favors put writing. Option positioning is driven by individual stock valuations rather than broad market views. Call options dominate, with an expected put/call ratio near 1:7 and cash or cash-equivalent exposure of around 30%.

Together, these factors result in an average effective market exposure of around 70%, though this varies with the opportunity set. Its lower-beta profile reduces volatility and downside risk but results in underperformance during strong bull markets. The strategy uses exchange-traded options to reduce counterparty risk, with durations ordinarily around three months. Active share is usually 60% relative to the category index, much like Natixis Investors Mutual Australian.

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