Aptus launches equity-enhanced bond strategy ETF

Aug 9th, 2018 | By | Category: Fixed Income

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Aptus Capital Advisors has launched the Aptus Defined Risk ETF (DRSK US) on Cboe BZX. The fund, which is actively managed by John D Gardner, Chief Investment Officer at Aptus, seeks income and growth through a hybrid fixed income and equity approach.

John Gardner Chief Investment Officer Aptus Capital Advisors

John Gardner, Chief Investment Officer at Aptus Capital Advisors.

The fund invests primarily in US corporate bond ETFs while attempting to boost returns through the use of call options on US equities.

The fixed income portion of the portfolio, accounting for approximately 90-95% of DRSK’s total allocation, is made up of iShares target-date maturity ETFs.

This segment currently consists of a laddered portfolio with equal proportions assigned to seven annually consecutive maturity dates ranging between 2019 and 2025.

The remaining 5-10% of DRSK’s capital invests in at-the-money call options on either specific large-cap US equities (around 10 to 20) or broad US large-cap ETFs.

The call options provide Aptus with the right to purchase shares of the underlying security at a specified price prior to a specified date, for which Aptus will pay an option premium cost.

In the event the underlying security appreciates in value, the value of the call option will generally increase, and in the event the underlying security declines in value, the call option may end up worthless and the premium lost.

By investing in call options, the ETF seeks to boost the total return of a diversified exposure to investment-grade corporate bonds through an alternative means compared to the traditional approaches of chasing yield or accepting long duration risk.

The additional risk taken on by pursuing the options strategy is defined to the 5-10% of capital allocated to that portion of the strategy.

DRSK comes with an expense ratio of 0.78%. It is Aptus Capital Advisors’ third ETF.

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