How to profit from the sharemarket's holding pattern
If you believe the Australian sharemarket is going sideways again, here is a share fund designed to profit from such a holding pattern.
It is called the BetaShares Equity Yield Maximiser Fund, which is listed on the Australian sharemarket with the ASX code YMAX.
Its aim is to pay out an income that is higher than the dividend yield of the portfolio of the 20 blue-chip Australian shares that are represented in the S&P/ASX 20 Index.
How does it do this? The fund holds the physical top 20 shares and uses a "buy-write" strategy, selling or writing exchange-traded call options that are listed on the ASX. BetaShares estimates that the exercise prices are 3% to 7% above the current market prices of the securities.
The strategy gives the buyer the right to acquire the relevant shares from the investor at a certain exercise price. The seller of the call option - in this case BetaShares - receives a fee or income that is paid to the investor.
This fee supplements the dividend paid by the shares, boosting the investor's income above the current market price of the securities. The fund pays all dividends and franking credits quarterly.
But by selecting a 3% to 7% gain, the seller gives up some of the future capital gain potential, so misses out on any sharp sharemarket rallies.
BetaShares says that many Australians have experienced a sideways market, as the ASX was in a negative trend for the six years between 2007 and 2011.
This fund suits investors who believe the sharemarket is going sideways but are still happy to be in it. It suits investors who are focused on income, as it pays more than the dividend yield.
The main risk is that the fund will underperform in a strongly rising market, such as the one in the year up to the end of February this year.
This means that gains are limited. The fees are transparent and reasonable for this sort of buy-write product, with the management fee at 0.59% and expenses capped at 0.2%.
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