DYN3361, Dynamic Premium Yield Plus Fund.
This fund uses leverage, uses Call and Put option strategies for US stocks.
At the moment they seem to have an overweight with cash-covered Put options.
In general do both Call and Put strategies work in markets that are choppy and there is no trend either up or down? What would you attribute to it's good performance over the last few years?
Yes, a choppy but stable market is good for both call and put strategies. But it is best for a fund that uses BOTH strategies, as it essentially plays both sides of the market to enhance income. In a flat market a covered call fund gets premiums from call options, which may (in a flat market) just expire. But selling both calls and puts can essentially double one's income if the market does not move much. Plus, there is a little bit more downside protection from the additional premium on the put options. A further benefit of course is that selling both calls and puts means only one option is going to be exercised. All of these points, in the hands of a skilled manager, and see a call/put fund outperform in certain types of markets. This fund has an excellent three-year return, but it does have a short history. It also uses 'moderate' leverage which will amplify returns (and potentially losses). We think it has done well, and its holdings (many large cap tech stocks) have certainly outperformed. The key here will be how the managers adapt to a different type of market.