sonic said:Hi Darren,
Thanks for your detailed post its very clear now. I wasn't clear from the PDS what the sell level actually is it wasn't specified. I.e. I can calculate the knockout level from day one if i know the market interest rate. What is the sell level it only says its above this.
I agree with your point regarding its unlikely to breach the knockout level. However in a market downturn lets say 10%, it would breach the sell curve and a bulk of the investment will be in fixed interest thus significantly reducing overall portfolio returns. And this will remain until the market recovers (which may not be possible in the7 year time period) as the manager will lose money if they liquidate their stocks. So basically u could have 60% of the fund in stocks 40% in fixed interest however because the stocks aren't returning much (i guess u still get the covered call income from them) the overall return would be lower.
Thanks for your time.
Dear Sonic,
Yes you are conceptually right with your possible scenario however the probability of it occurring right at the beginning of the fund is very low.
Darren Brind
Freeman Fox Ltd