I have a holding in Associated British Foods, which had a good yield when I first bought it, but which is not as high now. However, with brands such as Primark in its stable, it is growing fast and the prospect of future dividend growth is attractive.
Overall, the performance of the fund is best viewed in tandem with its sister fund, Fidelity Enhanced Income. Both funds have the same underlying holdings at their core, although the Enhanced Income Fund uses covered call options to boost income, which also results in a slight drag on total return in up markets.
For MoneyBuilder Dividend, where the yield is generated simply by what is paid out by the companies in the fund, the total return is ahead of that for Enhanced Income, but the difference in the yield is 4.2 per cent for the former, while the latter has a much higher yield, at 6 per cent.
Enhanced Income is the high yield option, and currently it is the lowest volatility fund in the IMA UK Equity Income sector, which makes it attractive to some investors. For both funds, the periods where they are ahead in terms of relative return have been where the index has fallen and they have not fallen as much. On the flipside, they tend to rise in line with the index, demonstrating it is a defensive strategy.
I work alongside derivatives expert David Jehan on the Enhanced Income Fund. Mr Jehan is a derivatives expert who is tasked with assembling the overlay of call options for the portfolio, coming up with a proposal for underwriting each stock in the fund, discussing each in depth with myself before a final decision is made on which calls to apply. In total, around 60 per cent of the fund is overwritten, generating an income premium and dampening volatility.
Taking this approach is the feature that sets this fund apart.
It is something that is done on a consistent basis, but it is not something that happens automatically. We dedicate the time to running the fund in the best possible way to ensure a good level of income that is set to grow over time, which is what investors are looking for now, more than ever.
Michael Clark is manager of the Fidelity MoneyBuilder Dividend Fund.
