Equity High Yield & Premium Income Fund. July 2014

Transcription

1 Equity High Yield & Premium Income Fund July 2014

2 Equity High Yield & Premium Income Fund Overview Long only, daily traded, liquid, completely transparent fund that does not use leverage. Equity fund focusing on semi-monopolistic, price inelastic, high yield dividend stocks that have large capitalizations, quality balance sheets, stated dividend policies and are therefore naturally defensive type stocks. Expected dividend yield 4% to 6% The Fund aims to enhance the return to investors by writing covered calls against the underlying securities. The Fund collects a premium by writing covered calls and retains all the benefits of owning the underlying stock, such as dividends and voting rights Expected premium income 8% to 12% Targeted weightings of 2% to 6% and the currency is hedged, reducing FX risk Source: Castlestone Management. 2

3 Selection of Buy-Write Holdings Description Portfolio % Dividend Net Yield Option Yield Income -30 Day Option Yield Income -Annual Source: Castlestone Management. The allocations are indicative and for illustrative purposes only. They represent a significant but not complete proportion of the holdings. Note: The withholding tax for E ON and Deutsche Telekom is charged at 25%. Mkt Cap Billions $ Industry Sector Country Subgroup Sector Return Communications TLS AU TELSTRA CORP 4.11% 5.36% 1.02% 12.24% $60.73 Communications AU Telephone-Integrated 17.60% DTE GY DEUTSCHE TELEKOM 3.29% 3.88% 1.01% 12.12% $75.95 Communications DE Telephone-Integrated 16.00% T US AT&T INC 3.82% 5.15% 1.16% 13.88% $ Communications US Telephone-Integrated 19.04% VOD VODAFONE 2.27% 5.29% 1.62% 19.49% $91.87 Communications GB Cellular Telecom 24.78% CHA US CHINA MOBILE 3.25% 4.43% 0.86% 10.31% $50.16 Communications CN Telecom Services 14.74% TOTAL TELCOM 16.74% Consumer, Non-Cyclical PM US PHILIP MORRIS 3.75% 4.24% 1.02% 12.21% $ Consumer, Non-cyc US Tobacco 16.45% GSK LN GLAXOSMITHKLINE 3.24% 4.83% 0.50% 6.02% $ Consumer, Non-cyc GB Medical-Drugs 10.85% NOVN VX NOVARTIS 3.13% 3.10% 0.55% 6.55% $ Consumer, Non-cyc CH Medical-Drugs 9.65% TOTAL CONSUMER NON-CYCLICAL 10.12% Financials CBA AU C' BANK AUSTRALIA 3.82% 4.69% 0.33% 3.93% $ Financial AU Commer Banks Non-US 8.62% ANZ AU AUST AND NZ BANK 4.32% 5.19% 1.10% 13.21% $84.46 Financial AU Commer Banks Non-US 18.40% WBC AU WESTPAC BANKING 4.42% 5.19% 0.67% 8.04% $97.89 Financial AU Commer Banks Non-US 13.23% BEN AU BENDIGO AND ADELAIDE 3.29% 5.30% 0.48% 5.73% $4.70 Financial AU Commer Banks Non-US 11.03% ASX AU ASX LTD 3.21% 4.69% 0.56% 6.67% $6.46 Financial AU Finance-Other Services 11.36% CME US CME GROUP INC 4.20% 6.23% 0.94% 11.30% $26.00 Financial US Finance-Other Services 17.52% HSBA LN HSBC HLDGS PLC 4.07% 4.70% 0.90% 10.82% $ Financial GB Diversified Banking Inst 15.51% SAN SM BANCO SANTANDER 3.30% 5.43% 1.29% 12.63% $ Financial SP Commer Banks Non-US 18.06% TOTAL FINANCIAL 30.63% Industrial SYD AU SYDNEY AIRPORT 5.08% 5.08% 1.28% 15.35% $9.01 Industrial AU Airport Develop/Maint 20.43% BA/ LN BAE SYSTEMS PLC 3.82% 4.80% 1.59% 19.11% $22.13 Industrial GB Aerospace/Defense 23.90% TCL AU TRANSURBAN GROUP 4.13% 4.36% 1.41% 16.92% $12.79 Industrial AU Public Thoroughfares 21.29% TOTAL INDUSTRIAL 13.03% Utilities EOAN Gy E.ON SE 3.90% 4.01% 1.02% 12.18% $38.81 Utilities DE Electric-Integrated 16.19% EDF FP EDF 3.00% 4.55% 1.43% 17.11% $70.59 Utilities FR Electric-Integrated 21.66% GSZ FP GDF SUEZ 3.00% 7.38% 1.22% 14.60% $67.64 Utilities FR Electric-Integrated 21.98% ED US CONSOLIDATED EDISON 3.56% 4.43% 0.75% 9.00% $16.60 Utilities US Electric-Integrated 13.43% AEP US AMERICAN ELECTRI 3.90% 3.85% 0.71% 8.53% $23.85 Utilities US Electric-Integrated 12.38% DUK UN DUKE ENERGY CORP 3.20% 4.42% 1.00% 11.99% $48.84 Utilities US Electric-Integrated 16.41% CNA LN CENTRICA PLC 3.36% 5.17% 0.90% 10.86% $27.77 Utilities GB Gas-Distribution 16.03% NG/ LN NATIONAL GRID PL 3.23% 4.73% 1.15% 13.83% $55.29 Utilities GB Gas-Distribution 18.57% FE UN Equity FIRSTENERGY CORP 2.33% 4.57% 0.98% 11.76% $13.22 Utilities US Electric-Integrated 16.33% TOTAL UTILITY 29.48% TOTAL % 4.82% 11.66% 16.48% 3

4 What Investors Are Looking For Now The Fund does not employ leverage which can distort returns (positively or negatively) The entire portfolio can be liquidated almost instantly, so you feel safe that you can get your money out Fund holdings should be exchange traded, in order to ensure transparency and liquidity Complete transparency of the holdings of the Fund so you understand what you own Source: Castlestone Management. 4

5 Outperformance with EQHY 6% 4% Castlestone Equity High Yield & Premium Income Dow Jones Industrial Average UK FTSE 100 Goldman Sachs Dividend & Premium Fund 2% 0% -2% -4% -6% -8% Dec-2013 Jan-2014 Feb-2014 Mar-2014 Apr-2014 Source: Castlestone Management & Bloomberg. Equity High Yield & Premium Income Fund AAS class shares. Data range 2 January 28 May Note: Past performance cannot be relied on as a guide to future performance. 5

6 EQHY: Less Volatility with Higher Returns 9.00% 8.00% 7.00% CBOE BuyWrite Monthly IX Goldman Sachs Dividend & Premium Fund Total return 6.00% 5.00% 4.00% Equity High Yield & Premium Income Fund 3.00% 2.00% FTSE 100 Index 1.00% 0.00% 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70% 0.80% 0.90% Standard deviation Aviva Investors US Equity Income-I USD Invesco Equity and Income-A Source: Castlestone Management & Bloomberg. Equity High Yield & Premium Income Fund AAS class shares, Data range 2 January 10 July Note: Past performance cannot be relied on as a guide to future performance. 6

7 Profit Attribution with S&P 500, FTSE 100 5% EQHY S&P 500 Index FTSE 100 4% 3% 2% 1% 0% Equity Dividend Options Source: Castlestone Management & Bloomberg. Equity High Yield & Premium Income Fund AAS class shares, Data range 2 January - 2 June Note: Past performance cannot be relied on as a guide to future performance. 7

8 Investment Decision Process Stock Selection - Semi-monopolistic - Price inelastic - Dividend yield 4%-6% - Strong balance sheets - Diversification by sector, industry and country Option Writing Option Writing - Management of Option writing - Management of Option Aiming to write.50%- writing 1.5% per month - Aiming to write.50%- 1.5% Ex dividend per month date - Ex Currency dividend risk date - Currency (currency risk hedging) (currency hedging) Implementation Implementation & Execution & Execution - Execution of portfolio - American or - American European or European Options options - Currency and - Execution corporate of portfolio risk - Currency and corporate management risk management - Liquidity - Liquidity Source: Castlestone Management. 8

9 Example: Sydney Airport SYD $4.35 Write a $4.40 call option expiring in 48 days for 8 cents $4.20 $4.35 $4.40 $4.60 Stock falls by 15 cents Decline = 3.45% Stock price doesn t move Decline/Profit = 0% Stock increases by 5 cents Profit = 1.15% Stock increases by 25 cents Profit = 5.75% Option income of 8 cents decreases the decline to -1.61% Option income of 8 cents increases returns by 1.84% Option income of 8 cents increases returns by 1.84% combined with equity returns of 5 cents or 1.15% Option income of 8 cents means increased return of 1.84% combined with equity return of 5 cents or 1.15% but underperform by 2.76% Returns -1.6% Outperformance % Returns % Annualised = 13.99% Returns % Annualised = 24.25% Returns % Annualised = 24.25% Underperform = 2.76% Source: Castlestone Management. 9

10 Example: Sydney Airport Source: Bloomberg and Castlestone Management. Note: Past performance cannot be relied on as a guide to future performance. 10

11 Example: Sydney Airport Share Price as of 11 th July 2014 = $4.35 Dividend Yield = ($0.12*2)/ $4.35 = 5.29 % Payment = Semi Annual Dividend = $0.12*2 = $0.24 Source: Bloomberg and Castlestone Management. Note: Past performance cannot be relied on as a guide to future performance. 11

12 Example: Sydney Airport Share Price as of 11 th July 2014 = $4.35 Premium Income = $0.08 Call option expires 28 Aug 2014 (48 days) Volume = 1335 contracts Option Strike = $4.40 Open Interest = 1321 contracts Source: Bloomberg and Castlestone Management. Note: Past performance cannot be relied on as a guide to future performance. 12

13 Total Return Equities rise + 10 % Dividend Yield 4%-6% Premium Income 8%-12% Capital appreciation / depreciation Total Return Equities fall - 10 % Source: Castlestone Management. 13

14 Equity High Yield & Premium Income Fund Conclusion Long-only, liquid, completely transparent, simple to understand, daily traded, unleveraged and currency hedged portfolio The Fund will invest in stocks that are semi-monopolistic, have inelastic demand, strong balance sheets, quality fundamentals and a high dividend yield (expected yield 4% to 6%) Outperformance with premium income strategy: enhancing the return to investors by writing covered call options (expected premium income 8% to 12%) Since it is unleveraged and long-only, the Fund may/likely will decline when equity markets decline Alternative to developed market stocks in a portfolio Source: Castlestone Management. 14

15 Client Services: Global Distribution Team About Us EUROPE CHRIS GREEN PAUL KHOURY MENA CHRIS GREEN PAUL KHOURY ASIA RICHARD WOOD TOBY FENN AFRICA SAM WOOD LATIN AMERICA CHRIS GREEN 15

16 Castlestone Fund Range About Us QUALITY INCOME (EQUITIES) REAL ASSETS (PRECIOUS METALS & COMMODITIES) SPECIALIST EMERGING MARKETS 16

17 Fund Facts About Us Incorporated: September 2007 Opened to Investors as a Public Fund: December 2013 Minimum Investment: $/ / 1,000 Fees: Tiered Fee Structure Dealing Frequency: Daily* Counterparties: Please refer to the Offering Memorandum for details on the counterparts of the Fund Administrator: Circle Investment Support Services B.V. Domicile: British Virgin Islands Auditor: Deloitte Accountants B.V. Regulator: British Virgin Islands Financial Services Commission Source: Castlestone Management. * Daily, subscriptions by 12:00 noon (GMT) each Business Day for the following Business Day NAV. 17

18 Important Information Appendix This document is intended for and directed at investment professionals and is not intended for retail customer use. Persons who do not have professional experience in matters relating to investments should not rely on it. This document is not offering to sell any product. Any transaction requires our subsequent formal agreement which will be subject to internal approvals and binding transaction documents. Castlestone Management Inc. ( We ) will not be liable for any use you make of any information in this document. We are not your advisor or fiduciary. We are not recommending or making any representations as to suitability of any product or the tax, legal or accounting treatment of any product. We are not responsible for information stated to be obtained or derived from third party sources. All opinions are given as of the date hereof and are subject to change. We are not obliged to inform you of any such changes. Any projections and opinions expressed herein are expressed solely as general market commentary and do not constitute investment advice or guaranteed return. They represent the views of Castlestone Management Inc. at the time of publication and are subject to change without notice. Any simulated performance data and/or past performance data contained herein is not a reliable indicator of future performance. Income from investments may fluctuate and investors may not recoup the amount originally invested. Any forward-looking statements concerning the financial condition, results of operations and businesses of Castlestone Management expressed or implied, are based on management's current expectations and assumptions, which may change without notice, and are no guarantee of future results, performance or events. Nothing in this document constitutes a representation that any investment strategy or recommendation is suitable or appropriate to an investor s individual circumstances or otherwise constitutes a personal recommendation. Investments involve risks, and investors should exercise prudence and their own judgement in making their investment decisions. This document is confidential. No part of it may be reproduced, distributed or transmitted without Castlestone Management s written permission. Neither this document nor any copy of it may be distributed, directly or indirectly, in the United States of America or its territories or possessions (the United States or to any US Person as defined in Regulations under the United States Securities Act of 1933 (as amended)). Any failure to comply with these restrictions may constitute a violation of United States securities law. This is not exhaustive; other regional-specific wording may apply. If in doubt, please consult with Castlestone Management s Compliance department. Castlestone Management Inc. is regulated by the British Virgin Islands Financial Services Commission. This scheme has been entered into the List of Restricted Schemes by the Monetary Authority of Singapore under paragraph 2(3) of the Sixth Schedule to the Securities and Futures (Offers of Investments)(Collective Investment Schemes) Regulations 2009 for distribution to institutional and accredited investors. No invitation to the public in Hong Kong to buy or subscribe for any product is permitted to be made. You should consult your own attorney, business adviser and tax adviser as to legal, business, tax and related matters concerning any of the contents of this document. This document has not been delivered for registration to the Registrar of Companies in Hong Kong, its contents have not been reviewed by any regulatory authority in Hong Kong, nor has the product been authorised by the Securities and Futures Commission. Accordingly, this document must not be issued, circulated or distributed in Hong Kong other than (1) in circumstances which do not constitute it as a prospectus as defined in the Companies Ordinance (Cap.32) or which do not constitute an offer to the public within the meaning of that ordinance, or (2) to professional investors as defined in the Securities and Futures Ordinance (Cap.571) and the Securities and Futures (Professional Investor) Rules made thereunder. Unless permitted by the securities laws of Hong Kong, no person may issue in Hong Kong, or have in its possession for issue in Hong Kong, this document or any other advertisement, invitation or document relating to any products other than to a professional investor as defined in the Securities and Futures Ordinance (Cap.571) and the Securities and Futures (Professional Investor) Rules made thereunder. 18