Ignis Argonaut European Enhanced Income Fund
European equities boutique, Argonaut Capital, is delighted to announce that the Ignis Argonaut European Enhanced Income Fund is now open for investment.
The fund, which launched on 30 April with £20 million of assets, is the first onshore fund to employ a covered call strategy to generate additional income from overseas equity markets. Managed by Oliver Russ, the new fund will target an income yield of 7% in its first year and between 5%-9% thereafter, depending on market conditions.
Currency hedged
Importantly, the fund will hedge returns into sterling, substantially removing the currency risk for UK investors. The new fund will provide an alternative to the un-hedged Ignis Argonaut European Income Fund, also managed by Russ, which was the first overseas equity income fund available to UK investors. Together, the two funds will provide investors with an option on currency for the first time.
The new fund hedges euro to sterling thus protecting investors from a devaluing of euro - a key benefit in the current environment and one that I believe will appeal to investors" says Russ. "Hedged investors should actually benefit from a devaluing euro, especially relative to the dollar, as it will provide a most welcome boost for exporters whose profits should soar on such weakness."
Income
Around 4% of the fund's 7% yield target will be generated from a portfolio of high dividend European equities, which will be substantially the same as in the existing Argonaut European Income fund. An additional 3% of income will be generated by selling covered call options on suitable stocks in the portfolio, selected by Russ, who will also set the options' strike price. Around two-thirds of stocks in the portfolio are expected to be included in the covered call strategy.
High conviction / robust process
Similar to the Argonaut 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?
Europe offers 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 amongst the highest free cashflows of any global investment region. Yielding European companies provide a diversified income source and will be familiar to UK investors. Selected stocks in the Argonaut European Enhanced Income Fund, including yield, are currently: Danone (2.9%), BASF (4.0%), Hennes & Mauritz (3.5%), Skanska (4.5%) and Zurich Financial (6.8%).
Oliver Russ, manager of the Argonaut European Enhanced Income Fund, says: "Sovereign risk and Greece have dominated the headlines in recent weeks but the overlooked fact is that core Europe is now experiencing a general economic recovery and corporate earnings are doing exceptionally well. Indeed, the European market's free cash flow yield is in line with the UK's, although Europe is a much wider source of income, with three times as many stocks yielding 3.5% or more.
"By employing a covered call strategy we can significantly enhance the already high yield available from the European market, while keeping volatility low. For investors seeking to diversify away from the UK, with its surfeit of equity income funds and limited number of high yielding stocks, we think this fund makes a lot of sense."