The Insight UK Equity Income Booster Fund combines an equity income portfolio with a call option overwriting strategy which attempts to improve investors’ income levels. We believe it is a compelling income solution for investors seeking a higher income stream than that generated by traditional equity income funds. The Fund has charges deducted from capital. Whilst this increases the income paid, it will also reduce the potential for capital growth. The Fund’s income target is 8% net of fees and net of basic rate tax*.
The Fund invests in a selection of approximately 35 - 50 equities that are predominately listed on the London Stock Exchange, though the Fund has the flexibility to invest up to 20% in non-UK listed stocks. The Fund then sells call options over the underlying equity portfolio. The premium from the call options provides the Fund with an additional source of income over-and-above that of the share dividend payments, boosting the Fund’s income. The Fund’s policy is to write call options on all of the stocks in normal circumstances. However, call options will not be sold where we believe the option price does not represent good value, for example if the stock is subject to a corporate action. Portfolio’s using call option overwriting are likely to outperform traditional equity funds in weak markets, flat or falling markets but lag in strong rising markets.The Fund also uses a derivatives strategy to generate additional income which may restrict Fund growth in rising markets.
The proportion of the Fund’s yield generated from equity dividends versus the call option overlay will vary over time as the dividend yields will be affected by fluctuations in the market. in order to meet the target income of 8%, the Fund is expected to generate around 3 - 5% from dividends as currently estimated, based on fund manager track record and current forecasts for equity dividend yields and 3 - 5% from call options. In effect, the income from the call options is used to top up the income from dividends to meet the 8% target.
The value of investments and any income from them will fluctuate (this may partly be due to exchange rate changes) and investors may not get back the amount invested.
* The target yield quoted is an estimate and is not guaranteed. It is based on the anticipated level of income distributions over a twelve month period. The target yield will be reviewed on an annual basis and is quoted net of charges (which are deducted from capital) and net of basic rate tax.
Further information on the terms used above can be found in our Guide to Call Option Overwriting and Investment Glossary.
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