On August 22, BlackRock Inc BLK unveiled three new fixed income exchange traded funds, offering investors a BuyWrite strategy on fixed income assets.
BlackRock’s New ETFs: The iShares Trust 20+ Year Treasury Bond BuyWrite Strategy ETF TLTW, iShares High Yield Corporate Bond BuyWrite Strategy ETF HYGW, and iShares High Yield Corporate Bond BuyWrite Strategy ETF LQDW.
The BuyWrite strategy seeks to invest in the selected ETFs by purchasing the underlying asset, while simultaneously writing (selling) a covered call option on that security which expires in 30 days. With the purpose of generating income from the option premiums.
Each month, the current option will be repurchased one business day before expiry, and a new one-month option will be written.
BlackRock’s BuyWrite exchange traded funds will seek to pay monthly distributions that include both the option premiums received and the underlying ETF dividends.
During certain market conditions, the BuyWrite strategy tends to enhance and stabilize income, while reducing the overall risk in the portfolio.
When interest rates rise and the spread widens, BlackRock’s BuyWrite Strategy ETFs will outperform the underlying exchange traded funds.
The underlying exchange traded funds used are the iShares 20+ Year Treasury Bond ETF TLT, iShares iBoxx $ High Yield Corporate Bond ETF HYG, and the iShares iBoxx $ Investment Grade Corporate Bond ETF LQD.
Stephen Laipply, U.S. Head of Bond ETFs at BlackRock commented, “Our buy-write exposures expand the functionalities of bond ETFs by unlocking a sophisticated use case with a potential to enhance income for investors in this volatile yield environment.”
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