Schroders is launching an income product that uses covered call options to generate a 7 per cent yield on UK large cap stocks.
The income maximiser fund will be managed by Schroders head of structured investments, Richard Lloyd.
The targeted yield is to be gained from a combination of dividends from the 40 stocks held, aiming at 3.5 per cent, and from the return obtained from selling covered call options, between 2.5 and 4.0 per cent.
Stocks for the fund will be chosen by Nick Purves, manager of Schroders’ income fund.
The trade off for higher income from the sale of options means upside potential is limited to 10 per cent per quarter, but the volatility of the fund is lowered by opting for a known return.