REX Shares has launched a new ETF providing smart beta exposure to a portfolio of leading US technology companies while simultaneously delivering income through an options strategy overlay.
Scott Acheychek, CEO of REX Shares.
The REX FANG & Innovation Equity Premium Income ETF (FEPI US) has been listed on Nasdaq with an expense ratio of 0.65%.
The fund’s equity portfolio tracks the FANG & Innovation Index which consists of an equally weighted allocation to 15 US-listed technology and technology-enabled companies.
Eight of the index constituents are fixed core components including household names Apple, Amazon, Meta Platforms, Alphabet, Microsoft, Netflix, Nvidia, and Tesla.
The additional seven constituents represent the most-traded companies across a range of tech-oriented FactSet industries such as Semiconductors, Electronic Components, Internet Software and Services, and more. These seven non-core components, reconstituted quarterly based on trading volumes, are designed to mirror evolving investor preferences.
The index is rebalanced to an equal-weight allocation on a monthly basis. Unlike market capitalization-weighted indices where dominant stocks might overshadow others, this method offers well-rounded exposure by helping to curb concentration risk.
Concurrently, to generate income, the ETF employs a covered call strategy, selling call options on the stocks within the index. This sale of call options brings in premiums from the option buyers, providing the fund with a level of income while also buffering somewhat against the inherent volatility of the technology sector. The downside of this approach is that the ETF will not participate fully in the potential upside of its equity portfolio.
The ETF sells slightly out-of-the-money call options, aiming to balance capital appreciation with income generation. The exact nature of these options depends on prevailing market conditions.
Commenting on the new strategy, Scott Acheychek, CEO of REX Shares, said: “We created FEPI to address a glaring market need; provide access to just the leaders in ‘Big Tech’ and use the volatility from these stocks to provide potential high income by selling out-of-the-money call options on them. This allows for upside participation in the important tech stocks that continue to drive the overall market while at the same time providing income which can also serve as a buffer against market downturns. FEPI is our present solution for income, paving the way for more options-based innovations from the REX Shares team.”