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...
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