In affiliation with the Australian Securities Exchange (ASX), Global X has announced the release of the Global X S&P/ASX 200 Covered Call ETF (ASX: AYLD), the first of its kind to track the S&P/ASX BuyWrite Index.
Global X has also launched the Global X Nasdaq 100 Covered Call ETF (ASX: QYLD), which will track the Cboe Nasdaq-100 BuyWrite V2 Index, and the Global X S&P 500 Covered Call ETF (ASX: UYLD), tracking the Cboe S&P 500 BuyWrite Index.
The latter two funds are already listed in the US and represent the two largest covered call ETFs in the world by assets under management.
The announcement comes after Global X outlined a plan in December to launch at least 10 new ETFs in 2023 and expand its Australian-based team.
A covered call — or a “buy-write” — sells call options over stocks an investor already owns, generating income in the form of a premium which can be a significant source of alternative equity income, depending on market conditions. Investors selling call options are still eligible for dividends and franking credits from their shareholdings.
Graham O’Brien, ASX head of equity market sales and equity derivatives, said buy-writes are currently the most popular options strategy among Australian investors.
“AYLD aims to enhance income potential and reduce portfolio volatility compared with outright share ownership. 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,” Mr O’Brien said.
All three funds invest in their indexes on a fully replicated basis. For AYLD, the fund invests in the S&P/ASX 200 and then sells quarterly exchange traded call options against the index, worth roughly 100 per cent of the value of the portfolio. Options are rolled to the next quarter the day before expiry.
Blair Hannon, head of investment strategy at Global X explained that the three funds will help investors balance portfolio growth and income.
“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,” Mr 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. This was evident when QYLD and UYLD generated high yields above 12 per cent in the second half of last year.”
Mr Hannon added that the suite of covered call funds enables more Australian investors to access this type of strategy in a simple and cost-effective form.
“A covered call strategy accessed through an ETF can save investors the time, potential expense and complexity of doing it themselves,” he concluded.
