Investors search for income and yield are taking a beating this year, particularly if they're relying on traditional assets. The Federal Reserve's interest rate cutting has Treasury yields residing at rock-bottom levels while the S&P 500 was home to a rash of negative dividend cutting in the first half of the year.
Covered calls, long a favored income-generating avenue for many investors, are fine ideas for boosting portfolio yield and the concept is made even easier with exchange-traded funds that do the leg work for investors.
A pair of new funds, the Global X Nasdaq 100 Covered Call & Growth ETF QYLG and the Global X S&P 500 Covered Call & Growth ETF SYLG, breath some new life into the covered call ETF space.
Why It's Important: Obviously, QYLG and SYLG are in their respective infancies, but for income investors, these rookie funds are relevant right now. Traditional covered call ETFs write calls on an index, say the Nasdaq-100 or the S&P 500, making the products good income ideas, but also leaving investors yearning for more upside.
QYLG and SYLG take a different approach. The former tracks the CBOE Nasdaq-100 Half BuyWrite V2 Index while the latter follows the CBOE S&P 500 Half BuyWrite Index. As those index names imply, the strategies are to write calls on just half the Nasdaq-100 or S&P 500, providing investors with more upside than potential than is found in standard covered call ETFs.
In simple terms, QYLG and SYLG have exposure to 50% of the upside generated by the Nasdaq-100 and S&P 500 while offering high yields and monthly income.
What's Next: “A 50% covered call approach is designed to balance growth potential with income, and therefore aligns best with investors seeking both outcomes,” according to Global X research. “For example, investors who recently retired and are looking to live off their savings for 20-30 years may want both current income as well as growth to head off inflation. More tactically, an investor may see a more bullish view of the markets and shift from a fully covered strategy to a 50% covered strategy in an attempt to capture more upside potential in the near term.”
Both new ETFs charge 0.60% per year, or $60 on $10,000 investments. Global X now offers five covered call strategies.
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