Castlestone believes that demand for predictable income in the form investing in large cap, defensive, blue chip, dividend paying stocks should be the focus of every investor as interest rates fall and currency values plummet.
As the Euro slides closer to parity to the USD and global currencies like the AUD and CAD fall in value, the ramifications on global corporate balance sheets will soon take centre stage. On top of already increasing volatility across financial markets, Castlestone believes the only way to shield ones investment portfolio is through investing in defensive strategies that enhance returns through predictable income.
Castlestone Management believes that their Equity High Yield & Premium Income Fund is asound investment opportunity that fits the current investment climate. On top of receiving income from large cap, developed market stocks, the fund also writes covered call options on the underlying equities with the aim of increasing returns into the fund irrespective of which way the markets move.
Castlestone Management, established in 1996, is an advocate of quality income in the form of semi-monopolistic stocks with inelastic demand that pay stable and high dividends. Adding an additional stream of income in the form of premium income from selling call options adds another layer of safety in an increasingly volatile market. The fund targets generating between 8%-12% of premium income per year on top of the 4%-6% target for dividend income. The fund invests into well-known names such as: GlaxoSmithKline, Sydney Airport, Verizon, Zurich Insurance, Duke Energy, American Electric and AT&T. The fund invests into developed market countries focusing on Westerns Europe, The United States, The United Kingdom and Australia.
Selling call options is an advantage when equity markets decline or remain flat (like we saw in 2008 and in 2011) as it limits potential downside. When selling a call option the seller receives a premium, or income committing to sell the option buyer a stock at an agreed price in the future. What this strategy can do in a quickly rising market is limit the potential upside in equity price appreciation. But with the outlook for equity market returns looking to be flat over the next decade, this should provide the fund a source of enhanced performance.
The fund, which was launched in December of 2013, is a strategy which we believe fits today’s economic uncertainty and investment climate.Angus Murray, the head of the investment committee at Castlestone Management believes that predictable income over unpredictable returns (appreciation or depreciation of equities) is what investors should be focusing on.
What Castlestone is focusing on is providing “enhanced” predictable income within a plain vanilla equity fund. Castlestone is aware that no one is able to “judge the directions of markets” accurately over time. Assuming equities will broadly be the same price in the long run; then income from dividends and premium will provide the added return for investors. Irrespective of this, in today’s world investors need funds that are fully transparent, do no use leverage, are easy to understand, offer real liquidity and provide consistent returns.
If 2015 has taught us anything so far it is that global interest rates are only headed in one direction as global central banks try to fight of deflation and spur growth. This will undoubtedly push investors into global equity markets as we have seen in the United States since 2009.
Castlestone Management believes that a buy write strategy focusing on blue chip, developed market, dividend paying stocks should be the main focal point within any investment portfolio in order to provide stable and predictable income over the uncertainty of market returns in increasingly volatile times.
