Atlanta-based investment advisor Liquid Strategies has become the latest new entrant in the ETF industry with the launch of five funds on NYSE Arca.
Each fund utilizes an actively managed ‘put spread’ overlay to enhance income.
Branded ‘Overlay Shares’, the ETFs provide access to core index exposures combined with an actively managed option overlay that seeks to enhance returns through incremental tax-efficient income.
According to Liquid Strategies, the funds are designed to serve as core investment solutions or as satellite holdings within an investor’s total portfolio.
The initial suite consists of three equity and two fixed income funds, targeting US large-cap, US small-cap and international equities, and USD aggregate and municipal bond markets.
The passive portion of the strategy is delivered through an ETF of ETFs with the funds investing in either iShares or Vanguard ETFs to deliver beta exposure.
Overlaying this, the funds’ managers apply a put spread option strategy which consists of selling short-term put options on the S&P 500 and simultaneously buying an identical number of short-term put options with a lower strike price.
The put spread strategy collects income from the difference in put prices and will generally be profitable if the S&P 500 is flat or trends upwards during the life of the options. It will suffer if the S&P 500 falls but losses will be capped when the price falls below the strike price of the long put which acts as a hedge.
Investors in the ETFs will, however, still be exposed to the full market risk of their passively managed position.
The initial line-up of funds is as follows:
The Overlay Shares Large Cap Equity ETF (OVL US) provides exposure to US large-cap equities by investing in the Vanguard S&P 500 ETF (VOO US).
The Overlay Shares Small Cap Equity ETF (OVS US) provides exposure to US small-cap equities by investing in the iShares Core S&P Small Cap 600 ETF (IJR US).
The Overlay Shares Foreign Equity ETF (OVF US) provides exposure to international equities by investing 80% in the iShares Edge MSCI Min Vol EAFE ETF (EFAV US) and 20% in the iShares Edge MSCI Min Vol Emerging Markets ETF (EEMV US).
The Overlay Shares Core Bond ETF (OVB US) provides US aggregate bond exposure by investing in the iShares Core US Aggregate Bond ETF (AGG US).
The Overlay Shares Municipal Bond ETF (OVM US) provides exposure to municipal bonds by investing in the iShares National Muni Bond ETF (MUB US).
Each fund comes with an expense ratio of 0.75%.
Brad Ball, Chief Executive Officer of Liquid Strategies, commented, “Overlay Shares ETFs quite simply seek to provide investors and advisors alike a simple, cost-effective, and operationally efficient way to get more from their portfolios over a long-term investment horizon.
“With interest rates near all-time lows, and volatility threatening equity market performance, our ETF Ovals can help investors potentially achieve higher returns without a material change to their risk profile—and do so without changing their asset allocation.”
Shawn Gibson, Chief Investment Officer of Liquid Strategies, added, “We believe that our collective wisdom and expertise delivers an innovative, cost-effective, and transparent method for utilizing overlays to seek positive, reliable returns with little change in volatility.
“By offering access to such risk-managed returns within an ETF structure, we feel we can change the face of investing, making it possible for individual investors and advisors to potentially improve investment outcomes with the additional stream of income on top of what they already receive from core assets.”