– Fund soft launched on 27 July 2010
– Targets a high income yield of approximately 7%* with low volatility through covered call strategy**
– Invests substantially in high quality mid-cap companies – offering greater diversification than concentrated large-cap UK equity income funds
Ignis Asset Management is pleased to announce the launch of 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 £97.6m 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 (27/07/2010 – 31/07/2010) the fund will target an annual yield of approximately 7%*, with the target adjusted annually within a range of 5% to 9% 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 – currently yielding 5%*** – 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 Martin – based on his extensive experience of investing the UK equity market – to generate the desired level of income enhancement.
The fund will be most suitable for investors seeking exposure to UK equities, a premium level of income and diversification away from traditional UK equity income funds, which rely heavily on a few large stocks for the majority of their yield.
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 10 UK dividend payers making up more than 50% 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.
“We believe this is an excellent time to launch the UK Enhanced Income Fund and we look forward to delivering an attractive level of yield for investors who are looking to boost and diversify their current income streams.”
*The fund is expected to deliver a yield of 7% in its first year from 27/07/10 to 31/07/11 and a yield of 5%-9% in subsequent years depending on market conditions.
**The use of derivative techniques in the fund has the overall intention of enhancing income, although this outcome is not guaranteed, and may cap the potential growth of the fund.
***Yields as at 30/06/10. Historic yields are based on the preceding 12 months distributions. Yields exclude preliminary charges and investors are subject to tax on distributions. Yields may vary and are shown as a percentage of the mid market unit price. Fund expenses are charged to capital. This increases the dividend distribution while constraining the funds’ capital performance by the same amount.
– Fund soft launched on 27 July 2010