Ignis and Argonaut Capital European Enhanced Income Fund
Trailblazing European equities boutique, Argonaut Capital, is delighted to announce the launch of the Ignis Argonaut European Enhanced Income Fund. The fund, due to launch at the beginning of April (subject to regulatory approval), will be the first onshore fund to employ a covered call strategy to generate additional income from overseas equity markets.
Considerable experience:
Oliver Russ, who co-founded Argonaut Capital Partners with Barry Norris, will manage the Ignis Argonaut European Enhanced Income Fund. The new fund will complement the £460 million Ignis Argonaut European Income Fund - the UK's first overseas equity income unit trust. Under Russ's guidance, the Ignis Argonaut European Income Fund has returned 20.35% since inception and at the end of February 2010 the historic yield was 5% - higher than any other European equity income fund. The Ignis Argonaut European Income Fund's current 5% historic yield would also place it in the first quartile, for income, when compared to its UK peers in the IMA UK Equity Income and Income & Growth sectors. The fund, which is the UK's largest overseas equity income fund, has achieved strong returns and a high level of yield relative to its UK and European equity income peers, whilst exhibiting one of the lowest standard deviation in its sector.
Higher yield:
The new Ignis Argonaut Enhanced Income Fund will utilise a covered call strategy whereby the manager will sell call options against stocks in the fund to generate a higher level of yield (the extra income generated means capital growth may be potentially constrained). In its first year the fund will target an annual yield of approximately 7%, with the target adjusted annually within a range of 5% to 9% thereafter. Investors will also benefit from the fund's potential to generate long-term capital growth.
Hedged to neutralise currency risk:
All returns from the Ignis Argonaut Enhanced Income Fund will be hedged to sterling providing access to the world-beating companies of Europe whilst neutralising currency risk. The Enhanced Income Fund will complement the un-hedged Ignis Argonaut European Income Fund as the two funds will provide investors with an option on currency depending upon their view on sterling relative to the euro.
High conviction / robust process:
Similar to the European Income Fund, the new portfolio will invest in 30 to 55 stocks, concentrating on three key areas: value stocks offering high dividends and the potential for capital appreciation; growth stocks with high earnings growth and a record of returning cash to shareholders; and special situations, where dividends are currently low but have considerable potential to increase as a result of restructuring or other corporate action.
Why Europe for income?
UK equity income remains a core allocation for UK investors, however, the pool of dividend paying companies listed in the UK is limited, particularly given the number of funds chasing the available yield. Europe, however, offers greater opportunity with more than three times as many high yielding companies than the UK in a far wider range of markets and sectors. In addition, European company balance sheets are strong and have the highest free cashflows of any global investment region. Yielding European companies provide a diversified income source and will be familiar to UK investors. Santander, BMW, Nestlé, Telefonica (which owns O2), EDF Energy and retailers H&M and Inditex (which trades in the UK as Zara), are well known brands in the UK that are all potential targets for the Ignis European Enhanced Income Fund.
Investor suitability:
The Ignis Argonaut European Enhanced Income Fund may be suitable for investors who are seeking European equity exposure without the currency risk; who recognise the superior equity income opportunities in Europe compared to the UK; who have pension drawdown requirements of 5%+ of income; who are willing to accept potentially constrained upside in return for enhanced income or who want a large cap European fund, whether investing for income or growth.
Oliver Russ, manager of the Argonaut European Enhanced Income Fund, says: "Europe has been a happy hunting ground for yield investors over the past few years and that trend is set to continue. The decision to launch an enhanced income fund was born largely from meeting with clients who were seeking an additional level of yield with neutral currency risk. The Enhanced Income Fund gives UK investors this option for the first time.
"Covered call strategies have been successful in the UK, and by adopting a similar approach in Europe, which offers far more opportunities for yield stocks than the UK, we believe we can deliver a very attractive income in addition to the significant benefits of diversifying away from our domestic market.
"We are delighted to add this fund to our suite of products and believe it will appeal to a broad range of investors. At Argonaut we have always tried to launch innovative and appropriate products with which to generate superior returns for investors. I have every confidence that this fund will pave the way and prove to be equally successful."