First Trust unveils ‘Dogs of the Dow’ high income ETF

May 9th, 2023 | By | Category: ETF and Index News

First Trust has launched a new ETF providing income-enhanced exposure to the highest-yielding stocks of the Dow Jones Industrial Average (DJIA).

Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust.

Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust.

The FT Cboe Vest DJIA Dogs 10 Target Income ETF (DOGG US) has been listed on Cboe BZX Exchange with an expense ratio of 0.75%.

The actively managed fund seeks to provide consistent annualized income that is 8.0% above the annualized yield of the DJIA (before fees and expenses).

It does so by first investing in the “Dogs of the Dow,” the ten highest dividend-yielding stocks in the DJIA. The ETF may invest directly in the underlying stocks or use exchange-traded options to gain synthetic long exposure.

The ‘Dogs of the Dow’ is a popular investment strategy that seeks to generate strong returns while also being relatively lower-risk due to the robust financial profiles of DJIA constituents.

To further boost the ETF’s income potential, sub-advisor Cboe Vest may opportunistically utilize covered call positions on the portfolio holdings.

A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from the option’s premium) than the asset would otherwise provide on its own from dividends or other distributions.

Historically, during bear markets, range-bound markets, and modest bull markets, covered call strategies have generally outperformed their underlying securities. However, during strong bull markets, when the underlying securities may frequently rise through their strike prices, covered call strategies historically have tended to lag.

Commenting on the new listing, Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust, said: “For decades, investors have followed the ‘Dogs of the Dow’ as a disciplined, contrarian approach for selecting well-known, high-quality stocks with attractive dividend yields. DOGG provides a simple vehicle for tracking this strategy, while also seeking an enhanced level of income.”

Jeff Chang, President of Cboe Vest, added: “While the ‘Dogs of the Dow’ investment strategy was popularized back in 1991, we are excited to bring this strategy for the first time in an ETF combined with our Target Income covered call strategy. Many of the first-generation covered call strategies produce current income to the point that they give up all of the potential future growth opportunities of the securities. In 2017, Cboe Vest developed the Target Income covered call strategy, which seeks to produce consistent current income and also allows participation in a portion of the potential growth of the stock basket.”

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