Home etftrends.com Advisors Want to Learn More About Covered Calls

Advisors Want to Learn More About Covered Calls

Last week, VettaFi hosted an Alternatives Symposium. For two-and-a-half hours, more than 400 attendees listened as Lara Crigger and I spoke to experts on a range of topics. Advisors and end clients also were actively sharing insights with us. 

For example, we asked which types of alternatives they had exposure to, and which they were most interested to learn about. The questions focused mainly on alternative investments that were featured during the symposium. 

What Alternatives Do Advisors Want to Learn More About? 

While gold exposure was the most popular selection to have exposure to (53%), far fewer people (25%) were interested to learn more about the merits of gold via the SPDR Gold Shares (GLD) or GraniteShares Gold Trust (BAR). In contrast, more wanted to learn about covered calls (53%), cryptocurrencies (33%), and catastrophe bonds (31%). 

We had two sessions last week focused on covered calls. In the first one, I spoke with Garrett Paolella of NEOS Investments and Eric Granat of Fidelity Investments. We discussed how covered call strategies can work across a variety of market environments.  

In moderately up to flat markets, these ETFs can boost income potential for a portfolio. In down markets, premiums may reduce some losses, but the strategies are not a loss mitigation tool. Meanwhile, income derived from options strategies offers several potential benefits beyond those of bonds. 

The Role of Option Income 

“These option strategies and covered calls can really bring healthy income to the portfolio,” stated Paolella. “Option income, depending of course on the fund and the type of option used, can bring certain characteristics of tax efficiency. This includes “converting a lot of [the income]to long-term capital gains treatment, a mix of long-term/short-term, or even sometimes a return of capital tax designation.” Paolella talked with me about the NEOS S&P 500 High Income ETF (SPYI). 

During the session, Granat spoke about the Fidelity Yield Enhanced Equity ETF (FYEE). This fund launched in 2024. “Monetizing equity market volatility is an attractive source of structural cash yield generation,” noted Granat. 

Keep It Simple … 

A second session on covered calls featured Goldman Sachs and ProShares. This was moderated by my VettaFi colleague Lara Crigger. 

“For our Goldman Sachs Equity Premium Income ETFs, we try to keep our value proposition simple,” explained Tim Ramsay, equity and alternatives portfolio specialist at Goldman Sachs Asset Management. “The long-only portfolio is fully transparent: You get the S&P 500, or Nasdaq-100. The active component of our strategy involves the covered call writing. We write options only to the level needed to support our target monthly distribution rate.”  Ramsey highlighted the Goldman Sachs S&P 500 Core Premium Income ETF (GPIX). 

High Interest in Catastrophe (CAT) Bonds  

A CAT bond is a security that pays the issuer when a predefined disaster risk is realized, such as a hurricane causing $500 million in insured losses or an earthquake reaching a magnitude of 7.0. Currently, no ETFs offer CAT bond exposure. 

However, one of the mutual funds that does is the Pioneer CAT Bond Fund (CBYYX). During the symposium, Chin Lui, director of insurance-linked securities at Amundi US, discussed how catastrophe bonds provided a strong alternative to traditional fixed income instruments. We expect to see an ETF focused on these securities in the future. Asset managers have looked to the fixed income market for product development. 

We have previously covered the interest in the wave of current and pending cryptocurrency ETFs. We recently discussed this on Bloomberg. 

If you missed the Alternatives Symposium last week, do not worry. A replay is available for all to enjoy.  

For more news, information, and analysis visit the Tax Efficient Income Channel.

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