How It Works
Impact Capital Fund's hybrid loan and investment strategy is proprietary, and has a provisional patent-pending with U.S. Patent and Trademark Office. Based on investor input, the Fund has a duration of 7-years, and offers a target annual income of 4%, with potential upside.
The Fund’s Loan Refinance Strategy
The majority of investor capital is loaned to creditworthy graduates with a steady income. For those who qualify, the loan interest rate is approximately 4%, which is low enough to refinance the student debt of most borrowers who potentially realize a 10-50% savings.
|Loan Type||2019-2020 Rate||Origination Fee||Historical 10-Year Range|
|Impact Capital Loans||4%||0%||N/A|
|Undergraduate||4.53%||1.06%||3.4% - 6.0%|
|Graduate Subsidized||6.08%||4.24%||5.4% - 6.8%|
|Graduate PLUS Loan||7.08%||4.24%||6.3% - 8.5%|
|Parent PLUS Loan||7.08%||4.24%||6.3% - 8.5%|
|Private Bank Loans||5.0% - 9.0%||1.0% - 5.0%||5.0% - 9.0%|
The Booster Portfolio Strategy
To BOOST the 4% return on the Fund’s portfolio of loans, the Fund allocates 25-45% to the proprietary strategy called the Enhanced Dividend and Income Portfolio. Historically, the EDIP portfolio generates a yearly return of portfolio income and capital gains. The income is derived from dividends on 20-30 blue chips stocks chosen from among the largest 100 stocks in the US market. In addition, 30-60% of the stock portfolio is overwritten with call options sold to generate portfolio income and dampen volatility. Taken together, historical dividends and option income average 4-8% per year. This income, combined with capital appreciation of the stock portfolio, has led to a historical total return of 12.75% annually from 2013 through 2019.
As with all market-based investments, past performance is not a guarantee of future results.
A 5-Star Morningstar™ Strategy
Impact Capital Funds utilize a novel, patent-pending investment strategy
Income Generation with Capital Appreciation:
- As illustrated, an investment of $500K in the Enhanced Dividend Income portfolio produced an average combined dividend and option income of 5.08% per year.
- Allowing for withdrawals of approximately $236,000 over a 7-year period, beginning January1, 2013.
- After deducting the dividend and option income for the 7-year period ending 12/31/19, the portfolio still grew at an annualized rate of 7.86% (before the 1.0% Fund fee).
Covered call writing helps potentially generate portfolio income and dampen volatility.
EDIP Portfolio Income Analysis Example
Sample Portfolio Income Breakdown
The Enhanced Dividend Income Portfolio has been designed for individuals that have income needs and for perpetual funds such as Foundations & Endowments that have income spending policies in the range of 5-7% a year.
With the use of out-of-the-money staggered covered call writing techniques, each dividend stock within the portfolio maintains a level of market exposure that allows for some additional capital appreciation in each of the underlying holdings.
|Sample Account Value||$500,000|
|Average Position Size||$21,100|
|Portfolio Dividend Cash Flow||$13,653|
|Estimated Option Cash Flow||$12,540|
|Estimated Annualized Cash Flow||$26,192|
|Portfolio Annualized Dividend Yield||2.73%|
|Estimated Annualized Option Premium||2.51%|
|Estimated Annualized Yield||5.24%|
EDIP Historical Income Illustration
The manager of EDIP strategy is Capital Wealth Planning, a $1.5 billion Florida-based investment manager. The CWP team constructs an equity portfolio of mega-cap, blue-chip stocks that is diversified across the traditional S&P sectors, and then strategically sells short-term covered calls to generate portfolio income.
|Ex: Starting Value||$500,00|
|Value After Income Withdrawals||$849,111|
Source: Callan. The chart above represents a hypothetical scenario in which a dollar amount representing the dividends and option income received each month is distributed, however composite performance is still based on their reinvestment. In an actual client account, dividend and option income would not be reinvested but would remain in cash until month end distribution. This could result in performance dispersion between a client account where income was reinvested versus a client account where it was not. Historically, reinvestment of dividends and option income generally results in better returns. The illustration above does not account for actual trading that would have occurred to produce these funds for distribution. Reported composite performance was not duplicated by any individual account, resulting in a different return for any particular investor. Past performance does not guarantee future results. Dividends are not guaranteed and a company's future ability to pay dividends may be limited. An investor cannot invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. The annualized returns cited might be achieved only if the parameters described can be duplicated and that there is uncertainty of doing so. Please refer to the disclosure section of the Impact Capital Fund offering documents for information on the formula used to calculate annualized rates of return.