A lot more than PIES in the sky
Merrill Lynch and Challenger Asset Management have launched a new warrant product aimed at investors seeking high yield investments.
The Premium Income Equity warrants, known as PIES, are issued by Merrill Lynch and distributed via Challenger's independent financial planning distribution channel and Merrill Lynch stockbrokers.
PIES are the first Merrill Lynch products Challenger has marketed. Challenger's other warrant products, such as its endowment warrants, have been issued by Macquarie Bank.
According to Challenger managing director Bill Ireland, the PIES warrants offer investors the benefits of direct share ownership, such as dividends and franking credits, as well as additional guaranteed premium income of between 2.7 per cent and 6.8 per cent a year.
In return for a guaranteed premium income, capital appreciation in the shares is limited to 25 per cent over the two-year investment term.
"Although investors may be giving away some of the more extremes of the upside, they have the benefit of certainty of income," Ireland says. "Using News Corporation shares as an example, the PIES yield on these shares would be around 6.8 per cent as opposed to the current yield 0.3 per cent."
The first series of PIES will be offered in three tranches over shares in ANZ, Cable & Wireless Optus, MIM Holdings, News Corporation, TAB and WMC. Each PIES warrant costs $5,000 and they will be listed on the Australian Stock Exchange.
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