Ignis launches UK Enhanced income fund

Ignis Asset Management has soft launched a second Ucits III fund using a covered call strategy to boost income returns.

The UK Enhanced Income fund will be run by Martin Brown (pictured) who also runs the £98 million Ignis Higher Yield fund.

It follows the recent launch of the Ignis Argonaut European Enhanced Income fund for the firm's Argonaut joint venture partner Olly Russ.

In its first year, UK Enhanced fund will target an annual yield of around 7% with a range of between 5% and 9% thereafter.

The fund will be similar in make up to the Ignis Higher Yield fund which had a historic yield of 5% in the year to the end of June, and will hold between 40 and 70 stocks.

It will have an unconstrained approach and invest in companies across the market cap spectrum.

Brown will look to invest from a bottom up perspective in stocks that exhibit one or more of three criteria; namely high dividend yield, strong dividend growth potential, or the potential for making strong capital returns.     

Brown will set the strike price for call options on a monthly basis.

Ignis head of UK retail Austin McBride said: 'Many UK income funds rely heavily on a few very large companies for the majority of their dividends. This approach ignores the wealth of opportunities available further down the market capitalisation spectrum and also increases stock specific risk, with the top 10 UK dividend payers making up more than 50% of the income generated by FTSE companies.'

He said the fund would typically have a greater bias to mid-cap stocks than its peer group.

'By seeking opportunities from a broader pool of high yielding stocks the fund will provide greater diversification for investors, which should alleviate single stock risk,' he added.

The fund will have an initial charge of 5.25% and an annual management charge of 1.5%.