Ignis launches UK Enhanced Income Fund
Ignis Asset Management has launched the Ignis UK Enhanced Income Fund.
The fund, which soft launched on 27 July 2010, employs a covered call strategy to generate additional income from stocks listed in the UK.
Managed by Martin Brown, who also runs the GBP97.6m Ignis Higher Yield Fund, the Enhanced Income Fund sells call options against stocks in the fund to boost the yield generated by the underlying portfolio.
In its first year the fund will target an annual yield of approximately seven per cent, with the target adjusted annually within a range of five per cent to nine per cent thereafter.
Investors will also benefit from participation in the fund’s long-term capital growth, with the upside capped in line with the call strategy.
The new fund, to be substantially based on the Ignis Higher Yield Fund, will invest in a concentrated portfolio of approximately 40 to 70 stocks, with a greater exposure to high yielding mid-cap stocks than the majority of its peers.
Unconstrained by benchmark weightings, the fund will not concentrate on any particular sector nor pay regard to market capitalisation in its equity exposure. Stocks will be selected on a bottom-up basis and typically exhibit one or more of the following attributes: a high dividend yield; strong dividend growth potential; or the potential for strong capital returns.
Call options will be sold on suitable stocks within the portfolio, with strike prices set monthly by Brown to generate the desired level of income enhancement.
Austin McBride, head of UK retail at Ignis Asset Management, says: “Conventional UK equity income funds have served yield investors well in previous years but, with interest rates forecast to remain at historic lows and inflation well above target, there is a clear demand for funds able to offer even more attractive rates of income through the use of call options.
“As has been shown by recent events, many UK income funds rely heavily on a few very large companies for the majority of their dividends. This approach ignores the wealth of opportunities available further down the market capitalisation spectrum and also increases stock specific risk, with the top ten UK dividend payers making up more than 50 per cent of the income generated by FTSE companies. The Ignis UK Enhanced Income Fund will typically have a greater weighting to mid-cap stocks than its peer group. By seeking opportunities from a broader pool of high yielding stocks the fund will provide greater diversification for investors, which should alleviate single stock risk.”
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