London, 19 January 2009 - Fidelity International is launching the Fidelity Enhanced Income Fund , a new fund for investors looking for a high level of regular income, on 2 February 2008
- Target yield of 150-200% of the FTSE All-Share Index yield - at launch expected to be 7.1%
- Reduced initial charge at launch
Managed by Michael Clark, who has 22 years of investment experience, FIF Enhanced Income Fund will aim to deliver a yield of 150-200% of the FTSE All-Share Index yield (net of basic rate tax). The fund's estimated yield at launch will be 7.1% which is based on 150% of the prevailing FTSE All-Share Index yield of 4.75% as at 15.01.09 (net of basic rate tax). This yield is not guaranteed and will fluctuate in line with the yield available from the market over time*. The fund will build both on Fidelity's fundamental investment approach and on Fidelity's derivatives expertise. It is designed to be more flexible than traditional equity income funds.
The core portfolio will be based on the Fidelity Income Plus fund, an equity income fund run by Mr Clark since July 2008, which invests in 40-60 high yielding stocks. In addition to the base dividends, the fund will generate additional income from writing covered call options. David Jehan, Director, Derivatives, who joined Fidelity in 2007, will work closely with Michael Clark to manage the covered call overlay strategy.
The fund has therefore two sources of income, and consequently can deliver a higher yield than that available to traditional equity income funds, which derive their yield from dividends alone.
Mr Clark comments: "The fund's launch coincides with interest rates being at an historic low, so savers have to look at alternative sources to maintain their income - interest income on bank and building society accounts has fallen dramatically.
"We are entering a period of time when dividend income will be a crucial component of shareholder returns. This fund offers a simple and transparent method of enhancing that income."
The FIF Enhanced Income Fund has a reduced initial charge of 3.0% (until 30 April 2009) and an annual management charge of 1.5%. The minimum investment in the fund is £1,000 and £500 for top-ups. The fund will also be available for regular savings plan (with a monthly minimum of £50) and for regular withdrawals through the Fidelity withdrawal plan. Income will be paid quarterly and the fund is available within ISA and SIPP wrappers.
About the managers:
Michael Clark joined Fidelity as an equity research analyst in 2002 and has since covered the oil service and oil exploration sectors, construction and house builders, the autos sector and the mining sector. He became a Portfolio Manager in 2007, and has managed Fidelity Income Plus since July 2008. Prior to joining Fidelity, Michael was an equity analyst for JP Morgan, Enskilda and Morgan Grenfell. Through these positions, he covered the engineering, consumer goods, pharmaceuticals and industrial services sectors and now brings a total of 22 years' experience to the Fund. Michael holds an MA in Modern Languages from Cambridge University.
David Jehan joined Fidelity's derivatives team in 2007 and runs the call option strategy for Fidelity Enhanced Income Fund. Having achieved a degree and a doctorate in physics from Oxford University, he joined the quantitative research desk of the equity derivative department BZW in 1994. He moved to Commerzbank in 1998, where he spent four and a half years trading equity derivative products, primarily in the European markets.
How Covered Call Options Work
Covered call options are instruments that allow the Fund to generate additional income from existing investments. The Fund will offer professional investors the right to buy stocks from the fund at a fixed price, the "strike", at a specified point in the future. Purchasers of these options pay the fund a premium for that option which is available for distribution as income.
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