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. 2016 has been a year marked by a large increase in volatility. Rising US interest rates at a time when the global economy is slowing down has seen investors drop stocks and bonds and head to the safety gold, US bonds, and traditional “defensive” strategies, like investing in utility and telecom stocks.
Castlestone believes that we won’t see equity markets returns like we saw from 2009-2014. The era of cheap dollars is coming to an end and with it should come a change in investment strategy. We believe that the only way to shield ones investment portfolio is through investing in defensive strategies that enhance returns through predictable income.
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