Global X rolls out three income-enhanced US sector ETFs

Nov 23rd, 2022 | By | Category: Latest news

Global X has expanded its suite of covered call strategies with three new ETFs targeting the financials, health care, and information technology sectors of the S&P 500.

Rohan Reddy, Director of Research at Global X

Rohan Reddy, Director of Research at Global X.

The funds are the Global X Financials Covered Call & Growth ETF (FYLG US), Global X Health Care Covered Call & Growth ETF (HYLG US), and Global X Information Technology Covered Call & Growth ETF (TYLG US).

Each ETF has been listed on NYSE Arca with an expense ratio of 0.60%.

The funds are linked to sector-focused Cboe Half BuyWrite Indices which combine a long position in the targeted S&P 500 sector with a systematic covered call overlay.

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’ strategy, the funds write one-month at-the-money call options on the appropriate Select Sector SPDR Fund for the targeted sector. The value of the written call options corresponds to 50% of the value of the ETFs’ portfolios.  The strategy, therefore, aims to provide regular income while still allowing investors to capture half the upside potential of the targeted sector.

Global X offers a further seven ETFs within its covered call series including funds based on the S&P 500, Nasdaq 100, Dow Jones Industrial Average, and Russell 2000 indices.

According to Global X, 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 rapidly rising interest rates.

Rohan Reddy, Director of Research at Global X, said: “Covered Call & Growth Strategies can help investors to navigate choppy and sideways markets while still allowing them to capture upside. I’m thrilled that Global X is launching these three covered call strategies covering key sectors, delivering on our mission to provide investors with intelligent and unexplored solutions.”

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