Independent investment manager Aptus Capital Advisors has launched a new actively managed equity ETF that seeks to provide income while offering downside protection through the use of option strategy overlays.
The launch brings the number of risk-management ETFs offered by Aptus to four.
The Aptus Collared Income Opportunity ETF (ACIO US) has listed on Cboe BZX Exchange and comes with an expense ratio of 0.79%.
The fund invests in approximately 30 US-listed large-cap equity securities including real estate investment trusts (REITs) and American Depository Receipts (ADRs).
The proportion of ADRs held in the portfolio will be limited to 20%, while exposure to any single sector will be capped at 30%.
Aptus selects securities whereby dividends paid by the issuer are expected to increase or remain stable based on an analysis of yield, earnings growth, revenue growth, and distribution history. Each stock is assigned an approximately equal weight within the portfolio.
Aptus expects to pursue an options collar strategy for most, if not all, securities held in the portfolio. A collar strategy involves buying out-of-the-money put options and selling out-of-the-money call options on the same underlying asset.
Collars are often set as ‘zero cost’, whereby the premium paid to purchase the put option is offset exactly by the premium received from selling the call option, although this may not always be the case.
The put option provides downside protection for the underlying stock; however, the main disadvantage of this strategy is that profits are capped if the stock’s price increases. According to Aptus, the fund aims to partially offset this disadvantage by owning a small position in call options on the SPDR S&P 500 ETF (SPY US).
The ETF will suit equity investors looking to enhance returns through dividend yields and are willing to sacrifice potential growth for more robust risk management. According to Aptus, the fund targets a maximum drawdown below 10%.
The launch brings the number of ETFs in Aptus’s roster to four. The other three ETFs, which also focus on risk management, are the Aptus Behavioral Momentum ETF (BEMO US), Aptus Fortified Value ETF (FTVA US), and the Aptus Defined Risk ETF (DRSK US). Each has between $70 million and $120m in assets under management.