Global equities can provide income for retirees due to options being used to manage volatility, according to a fund manager claiming to pioneer this strategy in Australia.
PM Capital chief executive Chris Donohoe said global equities had provided “little return and large volatility” in recent years, but the volatility could be turned into income through options, “selling call options to cap the upside of the stocks and protect the downside”.
Donohoe said that, to his knowledge, the PM Capital Global Equity Income Fund was the first in Australia to use a “global equities buy and write” approach.
This meant risk in the portfolio was managed, PM Capital options strategist Tim McGowen said. A degree of protection from a fall in share prices was provided “by sacrificing some of the potential upside”, McGowen said.
“It also generates additional income – above the income from stock dividends – as the manager generates a premium received from writing call options over the stocks within the portfolio,” he said.
The fund, while two years old, has just relaunched with Zurich Australia to make it available to all investors, from individuals to large institutions and superannuation funds.
Donohoe said the fund used the bottom-up stock-picking skills of PM Capital’s analysts and combined that with McGowen’s experience in options.
“It’s halfway between cash and equities, and while there’s a lot of these sorts of funds in the US, there’s no-one else doing this in Australia, we think,” he said.
McGowen said the fund focused on global stocks in the 25 per cent to 30 per cent volatility range because that translated to the 8 per cent income before dividend yields that was the fund’s selling point.
PM had chosen to partner with Zurich for distribution for a number of reasons, Donohoe said.
“Zurich is independent, and selects best-of-breed. It has less than 10 funds, and it has investment specialists, not just salespeople,” he said.
