RE: Horizon Enhanced Funds do better in a flat...
Yes these funds will not performas well when the market is spiking sharply upwards, because even though acapital gain occurs when the option is called, the fund manager is in the positionof having to buy back the underling security at a much higher price. Nowthere will be times when the fund manager will feel that the stock is due for acorrection and therefore sell an ‘in the money’ option thereby triggering the sale. This scenario is fine if the fund manager’s instinctsare correct, because the underling stock would then be bought back at a lowerprice. By the way there is no expense in writingcovered calls, just earnings once they are sold. There is a slight fee when shares are sold dueto a call option but it’s insignificant.
The income stream is made upof corporate dividends, capital gains and covered call earnings. The down side risk to this would be a 1930’sera depression where even ‘blue chip’ stocks stopped paying dividends, a longterm flat bear market where no capital gains could be realized and finally a scenariowhere there would be no investors to purchase covered call options.
I don’t see the high yieldscaring investors away, but rather nervous investors staying away do to thehigh volatility and uncertainly that persists in this market causing the lowerprice and higher yields. Once the US andEurope show signs that they are even trying to get their act together, theretail investor will return to buy up funds like these resulting in higherstock prices and ‘normal’ yields. Bythen these funds will have a healthy track record as well.
Well that is my take, anyother options, please post!
spazzman