Swan Global launches income-enhanced US quality dividend ETF

Mar 5th, 2024 | By | Category: Equities

Swan Global Investments has partnered with O’Shares Investments to launch a high-quality, dividend-focused US equity ETF that seeks additional income through an options-based overlay.

Swan Global launches income-enhanced US quality dividend ETF

The ETF seeks to deliver an alternative to passively managed equity income strategies.

The Swan Enhanced Dividend Income ETF (SCLZ US) has been listed on Cboe BZX Exchange with an expense ratio of 0.85%.

While Swan Global actively manages the fund’s equities sleeve, the portfolio is expected to closely resemble the composition and weightings of the O’Shares Focused Quality Dividend Index.

The index consists of 50 large-cap and mid-cap US companies that have a history of dividend payments and are exhibiting both quality and growth characteristics.

According to O’Shares, the index harnesses the firm’s proprietary research into the relationship between a stock’s total return and important financial measures of quality including profitability, cash earnings, and robust balance sheets.

The ETF then further seeks to augment its total return by leveraging Swan Global’s 26 years of experience in options-based investing. Specifically, the fund will opportunistically write covered calls on individual stock holdings within its portfolio.

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.

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.

Chris Hausman, Portfolio Manager and Managing Director-Risk at Swan Global, commented: “This approach provides investors with an alternative to passively managed equity income strategies, which may be unable to adapt to market conditions, unduly cap upside potential, and/or erode an investor’s capital base overtime.”

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