Hedge fund manager Fortitude Capital is set to launch a new product that aims to beat the S&P/ASX 100 Index by 8 per cent through the use of options and derivatives, Fortitude managing director John Corr said.
Also known as a buy-write strategy, the Fortitude Equity Income Fund is long-only and seeks to achieve its return objectives mainly by buying stocks with high dividends and enhancing those payouts by using derivatives.
"We want to target the S&P/ASX 100 and we will be heavily concentrated in the top 20 listed companies," Corr said.
The big four banks in particular are offering attractive dividend yields with added franking credits.
"We think that returns from equities going forward will largely come from dividends and we think we can enhance that by our skill set in Australian options and equity derivatives," Corr said.
The fund, set to trade from 1 August 2009, has already raised $10 million from high net worth clients and a not-for-profit group. The product has a capacity to manage $500 million, he said.
It's a very opportune time to launch a fund given the levels of implied volatility in the options market, Corr said.
Fortitude will look to expand distribution of the fund to financial advisory practices focused on high net worth clients.
The firm's Absolute Return Trust jumped 12.3 per cent in 2008 and gained 1.2 per cent from the start of 2009 to the end of May.
Australian Fund Monitors chief executive Chris Gosselin said a number of firms have launched buy-write strategies recently, as markets seem to have formed a base and equities have rallied.
