Covered calls for income?

dividendhero

I'm a fairly experienced investor, normally I run a mile from anything to do with derivatives, options etc..but the use of covered calls to boost income look quite tempting.

I accept that capital growth will be reduced, but a yield of 7% looks quite good and the use of covered options doesn't look overly risky.

Here's an example

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/s/schroder-income-maximiser-class-l-income

Any thoughts?

AnotherJoe

You can't get something for nothing, and since 7% is a pretty high return, Therefore from first principles you know the risk is much higher than you think.

HappyHarry

The 7% yield is part of the overall return. So, in 18/19 when the return was 4.84%, the capital growth was minus 2%, and in 17/18 the capital growth would have been around 0%.

The high yield may look attractive, and a high yield fund could be used as part of a portfolio to compliment growth funds, but you shouldn't consider the yield alone.

Many funds using underlying direct assets also allow some exposure to derivatives to provide some hedge themselves, this fund isn't particularly unusual in that respect.