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Energy and consumer cyclical sectors are the investment standouts, but finding fair value in the banking and utility sectors is much more problematic, an investment conference is told.
ETFs go niche with S&P/ASX 200 first covered call index fund from Global X
Market disruptor Global X has partnered up with the Australian Stock Exchange to launch the Global X S&P/ASX 200 Covered Call ETF, the country’s first index fund-tracking covered call or ‘buy-write’ options.
The provider has also launched the domestic version of two popular US-listed covered call ETFs, the Global X S&P 500 Covered Call ETF tracking the Cboe S&P 500 BuyWrite Index, and the Global X Nasdaq 100 Covered Call ETF, which will track the Cboe Nasdaq-100 BuyWrite V2 Index.
The announcement comes amid a major push into the domestic market for Global X, which in December signaled its intention to launch 10 new products in 2023.
A covered call transaction involves purchasing stock and subsequently selling an options contract commonly known as a ‘call’ or ‘put’ against the holding. A ‘buy-write’ relates to the action of buying stock and selling call options at the same time.
When selling call options, investors are still eligible for dividends and franking credits from the share holding.
According to Graham O’Brien, ASX head of equity market sales and equity derivatives, buy-writes are an increasingly popular options strategy for sophisticated investors.
“[The Global X S&P/ASX 200 Covered Call ETF] aims to enhance income potential and reduce portfolio volatility compared with outright share ownership,” O’Brien said in a statement. “As the first options strategy ETF listed over an index, investors can access a long back history of performance by reviewing the index history supplied by S&P.”
The three funds will let investors balance portfolio growth and income, said Global X head of investment strategy Blair Hannon (pictured).
“We consistently hear how important income is to investors across all age groups. We see options strategies, incorporated in ETFs, as a great entry point for investors to supplement existing income sources like dividends or coupons from bonds.
“Used as a core equity holding, the options premiums of a covered call ETF can smooth the impact of market falls. In this way, it provides investors with potential protection against drawdowns,” Hannon continued.
“Alternatively, a satellite portfolio holding can be used to generate an alternative source of income, especially in times of heightened volatility or rising interest rates.”
