View more on these topics

Ignis Euro equity takes a call approach

Ignis has launched a European equity income fund through its Argonaut boutique that uses a derivatives strategy to boost income.

The Argonaut European enhanced income fund aims for a target yield of around 7 per cent in its first year, with yields for subsequent years varying between 5 and 9 per cent depending on market conditions. It will also hedge around 95 per cent of its returns back into sterling to reduce currency risk.

Around 4 per cent of the initial yield is expected to come from dividends in a portfolio of 30 to 55 big blue-chip European ex UK shares. Fund managers Oliver Russ and Barry Norris will manage this part of the portfolio in the same way as they run the existing Ignis Argonaut European income fund. 

This involves applying a bottom-up stockpicking approach to European equities that pay high dividends, with a bias towards bigger companies. Stocks, which are classed as value, growth or special situations, are bought on a long-term view and will typically be held for three years.

The remaining 3 per cent of the initial yield will be generated from a covered call strategy, where fund managers sell call option on stocks they own.

A call option gives a buyer the right, but not the obligation, to buy stocks from the seller at an agreed price on a specified date.  For this right, the buyer pays the seller a premium, which will boost income for the Ignis fund.

However, the seller gives up potential growth above the agreed price, because the buyer is likely to buy the shares, or accept a cash settlement, if the shares are trading above it. This means the Ignis Argonaut fund may underperform if markets rise quickly.

If the underlying share price does not move, or falls, the call option expires and the seller will have still made a profit through the premium.

Some investors may be looking to Europe instead of the UK for equity income because yields are higher and the covered call strategy could be useful. However, it is a complicated strategy and currency hedging can have a negative impact on returns when the hedged currency depreciates, as the fund cannot benefit from appreciation in other currencies.


Rambourg back with Gartmore as an analyst

Guillaume Rambourg, the suspended manager of the Gartmore European absolute return fund, has returned to the group as an investment analyst. The group has applied to the FSA to have his approved status restored so it can reappoint him as a fund manager on the European large-cap team. Jeff Meyer, Gartmore’s chief executive officer, says […]

RBS set to axe 2,600 jobs

The Royal Bank of Scotland has revealed it plans to cut 2,600 jobs across the group, 2,000 of which will be from its insurance division. The news comes after RBS reported an oper-ating loss of £21m for the first quarter of 2010.

Sterling potential for currency mortgages

3D Currency Management, which runs multi-currency mortgages, says it is looking at opportunities to profit from “undervalued” sterling to help borrowers reduce their outstanding debts. The firm manages the currency for borrowers’ mortgages, monitoring positions on a round-the-clock basis. Chief operating officer Neil Staines says: “The aim is to reduce the value of outstanding debt […]


HMRC will not budge on drawdown trap

HM Revenue & Customs has confirmed that income drawdown investors aged between 50 and 55 are unable to buy an annuity or switch to another drawdown provider without facing a 55 per cent unauthorised payment charge.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm