The Options Portfolio is an alternative investment that aims to achieve over 10% per annum after tax and fees by investing in cash deposits, bills and other short-term financial instruments, and issuing derivatives.
For the first time in New Zealand, investors can access an alternative asset class structured around fixed interest rather than equities.
What’s more, it’s available for both lump-sum and regular contributions.
What sort of performance is expected?
Fidelity Life’s new Options Portfolio investment got off to a great start, returning 5.61% after tax and manager fees for its first six months to 31 January.
Over the long term, the Portfolio is a higher-risk investment choice that aims to achieve over 10% per annum after tax and fees.
Who manages the Portfolio?
Tyndall Investment Management (formerly Guardian Trust Funds Management) manages the portfolio for Fidelity Life.
Tyndall is one of the largest and most experienced fixed interest managers in New Zealand and has achieved some excellent returns in the New Zealand fixed interest markets.
Fidelity Life is a Morningstar 4-star rated fund manager – in the top four in New Zealand.
How does it work?
The Options Portfolio invests in cash deposits, bills and other short-term financial instruments with a credit rating a notch or two above the minimum investment grade.
The assets are then used as collateral security for derivatives, in particular by selling options on long-term Government stock.
Most options are issued for one month and provide the institutional purchaser with a payout if interest rates move by more than a prescribed margin in one particular direction.
The size of a payout depends on the magnitude of interest rate changes. The portfolio earns a premium for selling the options.
The option premium is added to the interest on the pool of assets to achieve a superior return.
However, if interest rates move beyond the “strike price”, the options will move “into the money” and the loss in value is debited against the Options Portfolio.
In such cases investors may lose some of the value of their capital. Options may be issued for 10 times the value of the underlying assets, with a “strike price” at least 20 basis points (0.20%) away from the current price.
A stop-loss strategy is in place to restrict the maximum loss in any one month.
In the unlikely event that there is a discontinuity in markets, it may not be possible to execute the stop-loss strategy.
Who is it suitable for?
The Options Portfolio is a high return/high risk investment. While returns should be very favourable over time, their volatility means that investors should be investing for the medium to long term – at least three years.
How can clients invest in the Options Portfolio?
The Options Portfolio is not a separate product. It is an additional portfolio for Fidelity’s existing products including Power Saver (low-cost regular savings), Power Super (a registered Super scheme) and Life Bonds (for one-off lump sum).
Investments can be made on the application form in the Investment Statement, choosing ‘Options Portfolio’ in the section for portfolio choice. It is also available to existing clients.
Options Portfolio returns Notes:
This advertorial is supplied by Fidelity Life
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