RWC launches enhanced dividend fund
RWC has launched the RWC Global Enhanced Dividend Fund managed by its equity income team, Ian Lance, John Teahan and Nick Purves.
Lance, Teahan and Purves joined RWC in 2010 and currently manage USD4bn in equity income funds.
The RWC Global Enhanced Dividend Fund seeks to build on the success of the more UK-focused RWC Enhanced Income Fund that launched in October 2010. The fund is designed to meet the needs of institutional investors, and offers global equity exposure and the potential of both a yield of around six per cent and long-term capital appreciation above the rate of inflation.
Additionally the fund aims to have a total return consisting of the income and the capital gain with a volatility of less than the equity markets. The yield is achieved through holding a portfolio of high quality defensive equities which on average yield three per cent. This yield is then bolstered by an additional three per cent by selling out of the money call options on the majority of the fund’s holdings.
This existing RWC Enhanced Income Fund has assets of USD560m which come predominantly from UK investors and institutions. RWC Global Enhanced Dividend Fund has already attracted investors from the UK.
The companies the fund owns must have strong balance sheets, a history of earning high returns and generating cash, and must be available at a reasonable starting valuation. In aggregate, these companies will tend to be less volatile than the wider index.
The call over-writing strategy further reduces volatility, as in a falling market the fund will keep the premiums from the option strategy.
The fund will hold cash when the managers are unable to find a sufficient number of companies meeting their investment criteria which are also available at low starting valuations. The elevated cash level lowers volatility and gives the managers the ability to invest in high quality equities once valuations improve.
The fund employs other methods of protection which reduce the exposure to a declining market and smooth the income stream from the fund. The result is a significantly lower volatility than the MSCI World Index.
Lance says: “Given an increased opportunity set available from a global universe allows us to evolve our offering in a number of ways. We are able to flatten the holding structure which reduces stock specific risk and volatility. Additionally, the broader remit allows this fund to avoid many of the risks associated with stock and sector concentration associated with UK funds. For example in Pharmaceuticals where the UK opportunity is limited, a global approach allows us to access companies such as Elli Lilly and Johnson & Johnson which are just as appropriate for what we are looking to achieve.
“We have always used as much of our overseas exposure as possible in our existing funds to alleviate this problem and this new mandate is unconstrained allowing further diversification. We are still looking for similar types of opportunity as we have done for many years; there are just more of them globally.”
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