UK-based Ignis Asset Management has launched a new income fund employing a covered call options strategy to generate additional income from stocks listed in the UK.

The Ignis UK Enhanced Income Fund invests directly or indirectly in a portfolio of approximately 40-70 stocks of mid-cap companies incorporated in the UK. This offers “greater diversification” than concentrated large-cap UK equity income funds, the firm said in a statement.

Stocks will be selected on a bottom-up basis and will have one or more of the following attributes: a high dividend yield, strong dividend growth potential, or the potential for strong capital returns.

The fund will sell call options against stocks it holds to boost the yield generated by the underlying portfolio. The fund targets an income yield of approximately 7 per cent with low volatility.

Martin Brown, who runs the £97.6 million ($152.7 million) Ignis Higher Yield Fund, will also manage the Enhanced Income Fund.

“Conventional UK equity income funds have served yield investors well in previous years but, with interest rates forecasted to remain at historic lows and inflation well above target, there is a clear demand for funds able to offer even more attractive rates of income through the use of call options,” said Austin McBride, head of UK Retail at Ignis.