UBS rolls out option-enhanced defensive equity ETFs

Aug 3rd, 2020 | By | Category: Alternatives / Multi-Asset

UBS Asset Management has launched a new suite of ETFs that offer defensive equity strategies by tracking option-enhanced indices.

UBS rolls out option-enhanced defensive equity ETFs

UBS has launched a suite of four defensive equity ETFs that utilize option overlay strategies.

The suite consists of four ETFs, listed on SIX Swiss Exchange, that target US or eurozone equities while providing either a covered call or put write option strategy for each market.

The UBS ETF (IE) US Equity Defensive Covered Call SF UCITS ETF (SPXCC SW) and UBS ETF (IE) US Equity Defensive Put Write SF UCITS ETF (SPXPW SW) have listed in US dollars and come with expense ratios of 0.29%.

The UBS ETF (IE) Euro Equity Defensive Covered Call SF UCITS ETF (E50CC SW) and UBS ETF (IE) Euro Equity Defensive Put Write SF UCITS ETF (E50PW SW) trade in euros and cost 0.26%.

The funds’ underlying indices are provided by Frankfurt-based Solactive, are based on the widely followed S&P 500 and Euro Stoxx 50 equity indices, and were designed using UBS’s experience in developing option selling strategies for institutional clients.

Clemens Reuter, Head of ETF & Passive Investment Specialists at UBS Asset Management, commented, “Equity markets have been volatile over time and, as a result, may expose investors to significant downside risk. Systematically selling options on major stock indices is a way to generate income, reduce downside risk, and benefit from that volatility.

“With this launch, UBS AM ETFs exemplifies its ability to provide innovative solutions to clients, allowing them to position themselves in any kind of market environment, including acting on market views other than outright beta.”


The covered call strategy combines a long position in the target equity index with weekly selling of call options to generate more income (the additional income from the option premium).

The call options sold will have a maturity of four weeks and a target strike price of 104% of the current index value. All options are held to maturity, meaning the index rolls over one-quarter of its options exposure every week.

Historically, during bear markets, range-bound markets, and modest bull markets, covered call strategies have generally outperformed the target index. However, during strong bull markets, when the target index may frequently rise through its strike price, covered call strategies historically have tended to lag.

Looking at the put write approach, the strategy combines a cash exposure with weekly selling of put options on the target index. The put options sold will also have a maturity of four weeks and a target strike price of 97% of the current index value. All options are also held to maturity.

The strategy may serve to enhance the return of a portfolio with long exposure to the target index if the investor believes the market will move sideways or trend upwards. The income received from the put premiums can also act as a slight buffer to the investor’s long equity exposure if the market slips.

If, however, the value of the target index falls below the put option’s strike price, the option finishes in-the-money and the strategy loses the difference between the strike price and the value of the target index. In this scenario, an investor with a long equity exposure who engages in a put-writing strategy would be exposed to a decrease in the value of their equity portfolio, as well as their obligation to the buyer of the option.

UBS’s foray into ETFs linked to options trading strategies comes just weeks after WisdomTree announced the closure of its WisdomTree CBOE S&P 500 PutWrite UCITS ETF (PUTW SW), citing a lack of demand from investors, and only a few months after BMO Asset Management, which offered a comprehensive suite of covered call ETFs, exited the UCITS ETF space entirely owing to insufficient levels of assets under management across its products.

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