Fidelity will use a covered call derivatives strategy to help target an initial yield of 7.1% on its new Enhanced Income fund, set to launch on 2 February.
Run by Michael Clark, the new fund will be based around the manager's £400m FIL Income Plus vehicle, with covered call options on a portion of holdings to generate additional income.
Fidelity expects the instruments to produce added income of between 150% and 200% over the FTSE All-Share Index yield, which currently stands at 4.75%.
Fidelity's derivatives director David Jehan will manage the covered call overlay strategy.
While Fidelity admits a premium income may impact on the fund's capital returns in periods of rapidly rising markets, it says the vehicle will offer better long term risk-adjusted returns than traditional equity vehicles, with income reinvested.
With interest rates at the lowest level in the Bank of England's 315-year history, Fidelity believes many traditional high-yield equity funds may need to hold poorer quality, but higher yielding, stocks disproportionately impacted by dividend cuts.
However, Clark says the companies he holds will be very unlikely to slash dividends. His major positions are consumer staples, utilities, pharmaceuticals and telecoms.
"Even with the dismal economic background, we are confident in the dividend prospects of our stocks," the manager says.
"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.
"We feel the markets are close to some of bottom at the moment and while we don't expect any major rally, we see a gradual recovery, albeit with a few bumps along the way."
The Fidelity Income Plus fund has fallen 24.8% over the year to 16 January, outperforming a 28.5% decline for the IMA UK Equity Income sector, according to Trustnet.
Fidelity has reduced the initial charge on the new Enhanced Income fund from 3.5% to 3% until 30 April.
Annual management charge is 1.5%, while minimum investment is £1,000 and £500 for top-ups.IFAonline
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