AllianzGI Equity & Convertible Income Fund (NIE), which yields 6.8%, invests in convertible equity and income-producing securities while hedging the overall portfolio with a covered-call strategy, explains Todd Shaver, editor of BullMarket.com.
The fund boasts a high quality portfolio of blue chips, including many Bull Market Report favorites such as Amazon (AMZN), Alphabet (GOOGL), Facebook (FB), Microsoft (MSFT), Apple (AAPL) and Visa (V).
All are market leaders, with strong fundamentals. All are approaching record-setting territory, leading investors who weren’t alert enough to buy in early to look for back-door exposure through the convertible debt these companies issue. In theory, the bonds will convert into stock at some point. In the meantime, they’ll pay interest.
The beauty of AllianzGI Equity & Convertible Income is that it offers exposure to these blue chips while providing a hefty dividend payout much larger than the aggregate yield of the portfolio itself. That’s where the covered-call strategy comes in to generate additional income.
A covered call starts with selling the right to buy a stock you own, which in this case is anything in the sprawling corporate portfolio. These options are rarely exercised, leaving the fund with the stock and the cash to distribute to shareholders as part of the regular distribution.
Additionally, the company is borrowing no money to lever its holdings. Equity & Convertible Income is not negatively impacted by rising interest rates and does not have to worry about being forced to sell its positions should the market suddenly turn sideways, two concerns that many competitors are fighting now. As a result, the overall risk portfolio is much lower than most high-yielding funds.
AllianzGI Equity & Convertible Income is an actively managed fund staffed by professional value spotters primed to benefit from the market’s current state of volatility. Aggressive fund managers with a track record of success can take advantage of choppy waters to outperform their index-driven counterparts.
It’s a lot like what we do. And the good news for investors is that the fund’s expense ratio is low compared to the substantial annual yield. Why not earn a high-yield dividend while owning blue chips? That’s a win, across the board.
