Premier Fund Managers is selling calls to structure a fund that pays out if the FTSE100 grows by more than 4% a year. Jonathan Fry, managing director in Guildford, said the fund is structured by selling call options. It also sells out-of-the-money puts to provide protection against a fall of over 50% in the value of the index.
The product pays out 8% for every year the FTSE100 grows 4%, and although it may extend up to six years, it will mature and pay out 8% plus capital if the index ends over 4% up in the first year. If the index moves sideways or downwards but ends the six years with 4% growth, the product re-pays the initial investment plus 48%, according to Fry.
ÒItÕs an alternative investment in some ways, because it is a net seller of volatilityÓ said Fry. The fund, dubbed Premier Growth Plan, is likely to be bought by traditional retail investors, but Fry also noted the product had appeared popular in initial consultation with fund trustees who are interested in using it to provide extra yield.
