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Premier’s Chris Wright seeks out yield in European telcos and utilities

Premier Asset Management’s Chris Wright is seeking out yield in European telecoms and utilities companies within the firm’s optimum income fund. 

The £9m fund is akin to the Schroder income maximiser model but uses a pan-european strategy.  It consists of 30-40 stocks which yield on average 4.5 to 5 per cent and targets an additional 2.5 to 3 per cent of income from money call options.  

Wright says the fund benefited from its overweight in telcos during the market crash but this was lowered to buy some European banks to try and capture the March bounce.  The fund has since returned to the sector with holdings now including Vodafone, Telefonica, KPN, France telecom and is also seeing opportunities in European utilities.

Wright says: “Very few UK utilities create enough cash, they create earnings but they’re so busy there’s no free cash there that really comes back to shareholders.” 

Non positions, says Wright, are industrials because: “on the whole in the UK there just aren’t large capitalisation high quality industrials to invest in and in Europe they don’t have high enough yields.” However he says the sector could be the next possible switch if there is a serious set back from stocks of the right quality. 

Wright says the use of call options within the fund serves to take risk off the table and is not a tool to gear as every time he sells an option he is doing it against a stock already held. The fund is also not exposed to counterparty risk as it only buys exchange traded options. 

Wright says: “I’m selling risk, what I’m doing is delevering the fund so when the market really flies it won’t go up so much but when it falls it will tend to fall less.”

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