If there was a time to be investing in income focused strategies, we think now is that time. Increased volatility across the investment landscape has seen many investors return to the safety of defensive strategies. At Castlestone Management we are focused on providing predictable income over unpredictable returns. We do this by investing in stable, large cap, blue chip, defensive, and high dividend yielding stocks across Europe, the UK, Australia and the United States.
On top of receiving income in the form of dividends, we aim to “enhance” these returns by selling covered call options on the underlying holdings. We are aware that no one is able to “judge the directions of markets” accurately over time however, by receiving two separate income streams into the portfolio this strategy should provide stable returns during flat, slowly rising or falling markets.
Castlestone Management believes that a buy-write strategy focusing on blue chip, developed market, dividend paying stocks should be the main focal point within any investment portfolio. This strategy should help to provide stable and predictable income over the uncertainty of market returns in increasingly volatile times, like we have seen since the end of 2015.
Selling call options is an advantage when equity markets decline or remain flat as it limits potential downside. When selling a call option the seller receives a premium, or income, committing to sell the option buyer a stock at an agreed price in the future. What it can do in a quickly rising market is limit the potential upside in equity price appreciation. However, with our outlook for equity market returns looking to be flat over the next decade, this strategy aims to provide a source of enhanced performance.
2016 has been a year marked by a large increase in volatility. The first quarter of 2016 was a tale of two halves with stock markets falling and then rising. Increased uncertainty over global growth has seen a revival of gold and precious metal prices as demand for safe haven assets increased. Defensive stocks like utilities and telecoms too have performed extremely well year-to-date.
Castlestone believes that we won’t see equity markets returns like we saw from 2009-2014 for some time to come. The era of cheap dollars is coming to an end and with it should come a change in investment strategy. We believe the focus should be on those large, blue chip, dividend paying stocks across defensive sectors, like pharmaceuticals, utilities, telecoms, select financials, and consumer staples.
We believe that the only way to shield ones investment portfolio is through investing in defensive strategies that enhance returns through predictable income.
