New York-based Global X has expanded its series of covered call strategies with the launch of the Global X Dow 30 Covered Call ETF (DJIA US).
Rohan Reddy, Research Analyst at Global X.
Listed on NYSE Arca, the fund is linked to the DJIA Cboe BuyWrite v2 Index which consists of a long position in the Dow Jones Industrial Average combined with a systematic covered call overlay.
The ETF comes with an expense ratio of 0.60%.
The Dow Jones Industrial Average, one of the most widely followed gauges for US stock market performance, is a price-weighted reference for 30 of the largest stocks listed in the US. The industrial moniker is largely historical, as constituents today represent many sectors, except transportation and utilities, which are excluded.
Stock selection is not governed by quantitative rules; instead, the index is maintained by a committee that aims to ensure constituents have an excellent reputation, demonstrate sustained growth, and are of interest to a large number of investors. Current constituents include Apple, Microsoft, Nike, Visa, Johnson & Johnson, Intel, McDonald’s, and Caterpillar.
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 option premium) than the asset would otherwise provide on its own from dividends or other distributions. In terms of the ETF’s strategy, the fund writes a succession of one-month at-the-money call options on the Dow Jones Industrial Average.
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.
Global X offers a further five ETFs within its covered call series including funds based on the S&P 500, Nasdaq 100, and Russell 2000 indices. Collectively, the suite houses over $8 billion in assets under management.
Covered call strategies may appeal to yield-seeking investors who are keen to avoid the duration risk posed by traditional fixed income asset classes amid the rising possibility of higher interest rates.
Rohan Reddy, Research Analyst at Global X, said: “Covered call strategies like DJIA can serve a variety of objectives for investors, particularly with its income potential in the rising rate environment we are seeing today.”