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Insight creates story for income seekers

Insight Investment

UK Equity Income Booster Fund

Type: Oeic

Aim: Income and growth by investing in UK equities, equity-related
securities and derivatives

Minimum investment: Lump sum £3,000, monthly £250

Investment split: 100% in UK equities, equity-related securities and
derivatives

Isa link: Yes

Charges: Initial 4%, annual 1.5%

Commission: Initial 3%, renewal 0.5%

Tel: 0845 607 0728

Insight UK equity income booster is an equity income fund that combines a UK equity portfolio with a covered call option strategy to boost yield and
reduce volatility. It is jointly managed by Tim Rees, an equity income
specialist and Richard Lloyd, a derivatives specialist.

Looking at the fund’s suitability to the market, Flowers McEwan director
David Flowers says: “In an investing environment characterised by fear and
the unknown, and yet with an ongoing need for returns – specifically income
returns – this fund could provide a solution. It gives advisers an
opportunity to encourage investors back into the market at a time when
prices may prove one day to have been a bargain.”

Flowers thinks it also provides a story for the income seeker. He notes that
the charges and adviser remuneration are standard. He says this means
investors have to lose 4 per cent up front in charges unless they can invest
£500,000 to go into the institutional B class shares.

“Income is targeted at 8 per cent and is intended to be smoothed out over 11
months, with the 12th month providing the balancing amount. The target
income will be achieved by taking charges out of capital and topping up the
equity yield with call option premiums. A reasonably reliable income at this
level will be very popular,” says Flowers.

Turning to the potentialdrawbacks of the fund, Flowers says: “Insight is gingerly treading where others may fear to follow by offering a structured product using call options. The educated adviser understands that these are usually risk management tools, not a recipe for loss as a result of greed.” He adds that nevertheless, more explanation will be needed and Insight’s literature is helpful for this.

He also feels that 12 months ago, this would have been a great product to
launch. “It now seems to have missed the opportunity. The price paid for a
high yield using the options is that potential capital growth will be
curtailed. Of course, we all expect volatility and probably some more
downward movements – in which case this fund will earn its way. We are
nearer the end of that period than we were a year ago and the hoped for
recovery in the coming years will be lost to investors in this fund.”

However, he says that in the meantime, investors should enjoy a steady and
reasonably high income.

Identifying the main competitors, Flowers says: “Corporate bond funds with
their credit risk permitting higher yields may offer more upside in a rising
market.”

He concludes: “I commend Insight for daring to use options when long-only
investing seems an easier sell. As a compromise between potential returns
and mitigating risk while providing a high income, this product will fill a
need.”

BROKER RATINGS

Suitability to market: Good
Investment strategy: Good
Charges: Average
Adviser remuneration: Average

Overall 7/10

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Important information

Investment risks

The value of an investment and any income from it can fall as well as rise and you may not get back the amount originally invested. Forecasts and past performance are not a guide to future performance. Some information and statistical data herein has been obtained from sources we believe to be reliable but in no way are warranted by us as to their accuracy or completeness. These are Neptune’s views and as such this document is deemed to be impartial research. We do not undertake to advise you of any change to our views.

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