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Fidelity mulls enhanced European dividend fund

Fidelity Worldwide Investment is considering launching an enhanced European dividend fund for portfolio manager Michael Clark.

Clark is currently running a pilot version of the fund, which uses a covered call strategy to generate high income.

The fund has been created by running covered calls on the existing £7.3m FF European dividend fund, also managed by Clark. He uses the stock ideas from this fund and writes covered calls on them to create the enhanced European dividend fund.

Clark also runs the £455m Fidelity MoneyBuilder Dividend fund and £83m Fidelity Enhanced Income fund, which uses covered calls to produce a target yield of 150 to 200 per cent of the FTSE All-Share Yield.

The Fidelity Enhanced Income fund has returned 37 per cent to October 5, compared to 31.1 per cent by the UK equity income sector, according to data from FE.

A Fidelity spokeswoman would not give any more details on the pilot.

Hargreaves Lansdown investment analyst Richard Troue says: “There is demand from investors for a decent income given the low interest rates available on cash. While the covered call strategy can be useful in boosting that income, investors need to be aware that it can sacrifice a certain amount of capital growth.”

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