Global X rolls out covered call ETFs on ASX

Feb 15th, 2023 | By | Category: Alternatives / Multi-Asset

Global X ETFs has introduced a new suite of yield-focused ETFs in Australia that aims to deliver an alternative source of income.

Global X rolls out covered call ETF suite on ASX

Global X’s covered call ETFs deliver an alternative source of income that is uncorrelated with equities and bonds.

Listed on the Australian Securities Exchange, the suite consists of three funds providing exposure to systematic covered call strategies based on mainstream Australian and US equity indices.

They are the Global X S&P/ASX 200 Covered Call ETF (AYLD AU), Global X S&P 500 Covered Call ETF (UYLD AU), and Global X Nasdaq 100 Covered Call ETF (QYLD AU).

AYLD, UYLD, and QYLD are linked to the S&P/ASX BuyWrite Index, Cboe S&P 500 BuyWrite Index, and Cboe Nasdaq-100 BuyWrite V2 Index, respectively. The indices consist of long positions in the S&P/ASX 200, S&P 500, and Nasdaq 100 indices combined with systematic covered call overlays.

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.

In terms of the new ETFs, the funds directly replicate the S&P/ASX 200, S&P 500, and Nasdaq 100 indices while simultaneously writing at-the-money call options on the indices for 100% of their portfolios’ net assets. AYLD writes three-month call options, rolled quarterly, while UYLD and QYLD write one-month call options, rolled monthly.

The strategy effectively eliminates all potential upside related to the performance of the ETFs’ equity holdings. Instead, it aims to generate high, steady income from the option premiums. The strategy may be utilized by investors who wish to diversify their sources of yield away from equities and bonds which historically have struggled during rising rate environments.

Each ETF comes with a management fee of 0.60%.

AYLD distributes income to investors on a quarterly basis, while UYLD and QYLD do so monthly.

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