This fund follows the Morley Barclays Global Income Plan, designed to produce the highest of 7 per cent gross or Bank of England rate plus 2.5 per cent.
The new fund is designed to provide a higher, more predictable level of income than deposit accounts, but with lower risks than investing entirely in shares. It will be available through Cofunds, The Bigger Picture and Transact platforms.
The fund is managed by head of active quant Iyad Farah and co-manager Tom Wills. Farah joined Morley Fund Management in 2000. He started his investment career in 1996 as an analyst for NPI and has also worked for Union Bancaire Privee.
Wills joined Norwich Union Investment Management in 1999 as a senior derivatives analyst. Previously, he spent four years at Citibank in derivatives research and six years at Ernst & Young.
Farah and Wills will invest in 50-80 shares of big and medium-sized companies, investment-grade bonds and use covered call options. A call option is an agreement that gives an investor the right, but not the obligation, to buy a stock, bond or other security at a specified price within a specific time period.
A covered call strategy is where the fund manager buys stocks and also writes a call option contract on them to generate income. This strategy also acts as a buffer against stockmarket falls.
The fund has a target income yield of 5.5 per cent gross a year, or 1 per cent above base rate. This will be achieved by a 60 per cent weighting in investment grade bonds and 40 per cent in global equities.
In the current environment of historically low interest rates, investors are finding it increasingly difficult to get the levels of income they require. While this fund has the potential to provide higher returns than deposit accounts with less risk than pure equity funds, the covered call option does not mean capital is protected and growth potential will be sacrificed in the pursuit of income.