Bestinvest says
Schroder Income Maximiser revolutionised the previously staid world of UK equity income funds on its launch in 2005. The 7% yield target far exceeded the income available from conventional UK equity funds, and through the covered call strategy the fund has consistently met this target. The fund also benefits from the disciplined value approach of the managers, who ignore short term market sentiment in favour of companies that will perform over the long term. The fund is best suited to flat or gently rising markets - returns may be held back during sharp market rises as covered call stocks meet their target prices and are effectively sold away.
The fund invests in companies of all sizes, but the bulk of the portfolio is in large and mid cap UK equities. Additionally up to 20% may be invested in overseas stocks – these will typically be hedged back to sterling. The managers believe that the market overpays for fast growing companies and those with positive recent newsflow, ignoring those with reasonable, but less obvious growth prospects. However, this anomaly is corrected over time. As a result they target stocks trading at a discount to their intrinsic value, and where they believe profits growth will surpass expectations. There is no yield target for individual stocks, but the aggregate portfolio aims for a yield of 10% above that of the FTSE All Share.
In addition to the dividends from the portfolio, the fund employs a covered call strategy to boost the yield. The fund sells 3 month call options on the underlying securities; the proceeds are distributed to investors as additional income. However, by selling call options the fund is giving away an element of a stock's potential capital upside – any share price growth beyond a fixed level is lost. In the event of a fall in dividends or option premium, the fund may give away additional participation in any capital upside to meet the yield target.