In an environment of historically low interest rates, the search for sustainable income becomes ever more important. Investors are forced to move funds from the relative safety of term deposits and cash, guaranteed by the federal government in certain circumstances into risky investments in the search for income that is sustainable and is higher than inflation.

Other areas outside of cash and equities are also worth looking into. In some instances, investors look to annuity products. An annuity is a product whose main benefit is to provide investors with a guaranteed income payment over a pre-determined period of time. As an investor in these products, you can elect to receive all or none of your capital back over the period of the contract at an interest rate which is set from the purchase date.

Whilst annuities are not covered under the Federal Governments deposit guarantee, companies that sell annuities are heavily regulated by APRA.

You should still understand what security backs the annuities to ensure full confidence that in 15-20 years there is a provider that will be there to continue the income payments.

So, whilst annuities might provide more certainty of return on the surface and have their place in a portfolio under the right circumstances, there are a number of risks attached to them, that investors need to be aware of.

We continue to be wary of placing client capital in long term investments at very low rates of return. The advertisements which play up to the fear of not having enough cash flow do not mention that the cash flow from these investments is currently extremely low. Investors that locked away investments as a result of a fear of equity markets did so at a low point in market prices (through 2008). These investors have missed a strong recovery in market prices while locking away low rates of interest. Further, the guarantees are only guaranteed by the issuer.

If an annuity is not your cup of tea, then where should you look for a reasonable distribution on a regular basis that also provides some inflation protection? Our view is infrastructure and property.

Our current Prime Minister Tony Abbott has made much of the fact that he wishes to be known as the 'Infrastructure Prime Minister' leaving behind a legacy of long life, productive assets that will continue to provide the economic growth Australia is seeking. The key to successfully investing in this space as part of a diversified portfolio is understanding the cash flow being generated and the longevity of that cash flow.

In last year's report, we talked about the attractiveness of the cash flows generated from good quality infrastructure and property assets and how those types of assets provided a natural hedge against inflation and your purchasing power. Essentially, these types of assets provide long life, regular income streams that if managed correctly, should also provide a level of capital growth over time.

Takeover activity has been strong in the sector. We saw the Future Fund, the entity responsible for looking after Australian public servants pension liabilities make a successful takeover bid for Australian Infrastructure Fund. Again, a number of assets with the potential to generate growing income streams for many years that can be used to fund the pension liabilities as they fall due.

We have also seen APA Group make an offer for Envestra. This comes after APA Group took over Hastings Diversified which owned the pipeline connecting many of APA's pipelines.

The consistent distribution flow and steady growth are attributes that are demonstrated in Figure 13 for APA Group and Sydney Airports.

In the property space, activity has thus far been more subdued save for investors' recognition of the reward that income distributions provide. Recent action has surrounded two bids for Commonwealth Property Office Fund from Dexus and also GPT. This is recognition of the quality of the underlying investments and the long term, inflation protected rentals paid by the tenants. This is clearly a space worth watching.

There are some pitfalls in these asset classes that investors need to be aware of. The most obvious ones relate to revenue receipts falling short of projections. Well established business models with mature assets are least risky here. Further the structure of the investment must be considered.

We continue to see sound cash flows being generated for our clients in an ever decreasing field of assets. We also look toward new infrastructure assets joining the listed universe and becoming long term cash flow investments that can be a substitute for other income generative investments while providing some inflation protection characteristics.

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