“You’re taking that income plus the franking, and you’re happy to give away some of that earnings growth during periods of rapid economic expansion, and instead you’re taking on a potentially slower level of growth but more certainty around the sustainability of income, and by virtue of the fact that they’re bigger, more robust and diversified businesses…you’ve probably got a lower level of volatility.
“What you’ve still got with that portfolio is a market risk. You have a mandated manager that has to go long, that has a level of cash that they’re able to go to. It might be 10 per cent, it might be 20 per cent, but apart from that they have to be fully invested in the equities market, which means you’ve got market risk.
“And the other side of that is that your income is the payout ratio that the board of directors decides on. You don’t really have that much control over what you receive. What we saw in the GFC was a lot of companies, their operating cashflows declined, and so we saw pretty severe dividend cuts.
“Being able to utilise an options strategy that can not only manage volatility, but also generate additional income in all market conditions, is a desirable capability in that environment.”
