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News: Schroders launches income fund

Investment house, Schroders, has announced the launch of the Schroder Income Maximiser - the fund aiming for an initial gross yield for investors of up to 7% through an actively managed portfolio of higher yielding UK large cap stocks and a covered call option overlay strategy on those stocks to enhance the yield.

How the covered call option overlay strategy works is that the fund will aim to produce a return of circa 2.5% to 4.0% p.a. by entering into contracts, each quarter, by which the fund agrees to exchange the profit on any stock exceeding a certain level, for example, 10%, for an agreed fee (return). The fee is used to boost the income of the fund i.e. a return of circa 2.5 to 4.0%. Hence the fund (in this example) participates in any gain up to this 10%, each quarter, but surrenders returns above that level. So the trade off for higher income from the sale of options means that upside potential is limited.

Worth pointing out however is that the exchange of a potential but uncertain capital gain for a known return should improve the fund's risk profile (volatility) by regulating its likely performance in both up and down markets, delivering an extra income stream in all market situations.

Stocks for the fund will be selected by Nick Purves, who manages the Schroder Income Fund. Likely top ten holdings will be: Vodafone, Royal Dutch Shell, Unilever, Cable & Wireless, BT, GlaxoSmithKline, British American Tobacco, Marks & Spencer, Centrica and Royal & Sun Alliance.

Schroder Income Maximiser is an authorised unit trust offering daily dealing. There is no fixed term or lock-in period for investors. Income meanwhile is paid quarterly and investors can invest through an ISA or ISA/PEP transfer.

Fund charges are 5.25% initial, 1.5% annual.

Schroders is offering a 2% launch discount on the initial charge for investors into the fund - the launch period running from October 24th - November 4th with daily dealing commencing on November 7th

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