Investment manager Fidelity International is to launch an enhanced income fund which the firm says can deliver a higher yield than traditional equity funds which derive their yield from dividends alone.

The Fidelity Enhanced Income fund will target a yield of 150-200 per cent of the FTSE All-Share Index yield, and in addition to base dividends will generate additional income from writing covered call options.

The fund will be managed by Michael Clark with a core portfolio based on the Fidelity Income Plus fund, an equity income fund run by Mr Clark since July 2008 which invests in 40-60 high yielding stocks.  David Jehan, Fidelity’s director of derivatives will work with Mr Clark to manage the fund’s covered call overlay strategy.

“The fund’s launch coincides with interest rates being at an historic low, so savers have to look at alternative sources to maintain their income – interest income on bank and building society accounts has fallen dramatically.

“We are entering a period of time when dividend income will be a crucial component of shareholder returns. This fund offers a simple and transparent method of enhancing that income,” said Mr Clark.

The Enhanced Income Fund launches on 2 February, and until 30 April has a reduced initial charge of 3 per cent and an annual management charge of 1.5 per cent.  Initial commission for advisors will be 3 per cent with an ongoing commission of 0.5 per cent.

Income from the fund, which is available within ISA and SIPP wrappers, will be paid quarterly.

Fidelity International’s assets under management totalled $197.9 billion as at 30 September 2008.  The firm offers equity, fixed income cash and multi-manager funds, and provides online fund platforms in the UK, Germany, India and Taiwan.