Type: Unit trust
Aim: Income and growth by investing in higher yielding UK large caps and options on these stocks
Minimum investment: Lump sum 1,000, monthly 50
Investment split: 100% in UK large caps and options
Isa link: Yes
Pep transfers: Yes
Charges: Initial 5.25%, annual 1.5%
Special offer: Initial charge reduced to 3.25%
Offer period: Until November 4, 2005
Commission: Initial 3%
Tel 0800 718 777
Schroders income maximiser is a unit trust that aims for income and growth by investing in higher yielding UK large caps and options on these stocks under the Ucits III rules.
Independent Personal Financial Management director Luke Gibbon points out that idea behind this product is to generate a high yield by investing in 30 to 40 UK large cap stocks which should provide a yield of about 3.5 per cent a year.
Schroders will then sell call options on the shares which it estimates will produce a further 2.5-4 per cent a year in premiums. The dividend and premiums can be accumulated or distributed as income. The fund can therefore be used as a low-risk growth product or a high income fund, he says.
Gibbon notes the use of call options is designed to enhance the fund if the prices of the shares within the portfolio fall or do not rise above the target or strike price. If the share price exceeds the strike price then the excess growth will be lost, he says.
Looking at the structure and charges of the fund Gibbon says: The fund can be purchased via an Isa. The normal unit trust and Isa charges and commissions will apply.
Highlighting the less attractive features of the fund Gibbon says: The concept behind the call options is complex and could be difficult to explain to clients. As an analogy, I take my car to be serviced at a garage in the belief that the mechanics know what is going on under the bonnet. Advisers need to be the mechanics of the finance industry however, we need to explain to our clients how the product works or run the risk of recrimination at a later date.
He also draws attention to the charges are taken from capital which will increase the risk of capital loss.
Casting an eye over potential competitors Gibbon suggests other high income products will provide the main competition. However these will normally contain junk or precipice bonds and cannot be directly compared with this product, he says.
He concludes: As with any product it will only be suitable for certain clients. However I think the product will have a wide market and will certainly be recommending it where appropriate to my clients.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average