Premium fund aims to grow capital through the sale of options on its stock holdings
Thornhill Investment Management has launched a fund that aims to grow capital through the sale of options on its holdings.
The Thornhill Premium fund will run a portfolio of between 15 and 20 FTSE 100 stocks and then add value through the pricing of the options it writes.
The Thornhill investment team, headed up by Russell Wallis, who is also lead manager on the company's flagship Capital Trust fund, will utilise the research it already generates as part of running Capital Trust, as well as Wallis's own experience in operating in the options market.
The product is registered as a Cayman Island exempt fund and, as such, is an unregulated collective investment scheme, although the company plans to apply for onshore distributor status in the near future.
The annual management charge is 1.5%. In addition, a performance fee of 15% of the profits, with a high watermark, will be levied on a monthly basis. Qualified introducers of business will be able to receive one third of the annual management charge plus one third of performance fee as commission. The minimum investment in the fund is $50,000 but currency exposure will be in sterling.
The group is only writing options on stocks it owns and there is no leveraging of the fund.
Premium has been launched with seed money and is aiming to provide some defence to investors in horizontal or falling markets. The target returns on the vehicle are 15%-30% per year in a flat or slightly rising market.
Wallis said: 'This is not an absolute return fund but more of a halfway house between a hedge fund and a long-only portfolio.
'People buying this portfolio are likely to believe, as we do, that markets may well be flat in the foreseeable future, although individual stocks will continue to be able to produce attractive returns. They may also be looking for some element of downside protection from their investment, which this fund will be able to provide.'
He added that the fund should be able to produce competitive returns in all but the strongest bull market, where almost inevitably investors will miss out on top-end performance because of the nature of the product.
Wallis added that he sees the fund as being essentially conservative in nature, operating as it does in FTSE 100 companies and the highly liquid options markets.
Stocks selected for the portfolio will be well-known names such as BP or Lloyds TSB, which will then be made to work harder in order to grow investor capital.
Sufficient capital will be put aside in order to cover outstanding option positions at any one time.
Where this is not possible, the fund has access to a temporary overdraft position until such time as the option can be realised.
Wallis will be assisted in the management of the fund by Brenda Pennel, who also helps run the Thornhill Capital Trust.
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