Stockbroker firm Durlacher has established the blue chip plus fund, an Oeic that aims to enhance returns by selling options.
The fund aims for capital growth by investing in a portfolio of between 30 and 40 UK blue chip companies, which will reflect the performance of the FTSE 100 index. The fund will aim to boost returns by selling the rights to buy the underlying holdings at a higher level than the share price, although it will not use gearing.
For example, if the current share price is 560p, the option may give someone the right to buy the shares at 600p in three, six or nine months' time. The premium that is paid by the buyer is kept by the seller whatever happens, enhancing the returns if the option to sell is not taken up. This could provide greater returns if the stockmarket does not rise, or rises moderately, but is unlikely to do so in a rising market.
According to Jamie Weir, managing director of IFA firm Churchill Investments, Durlacher's use of options is not a new concept since Foreign & Colonial's income fund also favours this approach. Investors who choose these types of fund would need to be experienced investors who know what they are doing. However, they are more likely to choose a management group with a track record rather than Durlacher, which is new to the retail market.