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Goldman Poised to Launch Covered Call ETFs

The JPMorgan Equity Premium Income ETF (JEPI A) has become one of the darlings of the ETF industry. The actively managed covered call ETF has gathered $9 billion of net inflows in 2023 and $18 billion in the past 12 months, per VettaFi LOGICLY data. Such success was likely to cause asset managers to take notice. Indeed, Goldman Sachs just filed regulatory documents to soon launch the Goldman Sachs U.S. Equity Premium Income ETF

Advisors have been gaining comfort with covered call strategies. Indeed, VettaFi hosted a webcast in late March with KraneShares about its new covered call ETF, the KraneShares China Internet and Covered Call Strategy ETF (KLIP ). We asked advisors whether they currently had an allocation to covered calls, not specific to ETFs. While the majority (63%) said no, it was surprising that a strong minority of the respondents (37%) said yes, given that KLIP had just $5 million in assets.      

In contrast, JEPI has $26 billion in assets, making it the largest active ETF. The asset base is impressive given that the ETF only turned three years old last month. JEPI’s net expense ratio, which is relatively low at 0.35%, is helping.  

My VettaFi colleague Dave Nadig and I discussed demand for active ETFs like JEPI in a recent video. 

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Given Goldman Sachs’ scale, we would expect the firm to attempt to price its pending ETF competitively. No fee or ticker was listed in the regulatory documents, which is normal at this stage. We would expect the ETF to begin trading by the end of 2023. 

The Investment Approach Matters With Active ETFs 

Details about the investment approach for Goldman’s product is also pretty general. The fund will seek to achieve its objective by investing primarily in a portfolio of stocks comprised significantly of those included in the fund’s benchmark. Then, it will sell call options with exposure to the benchmark. The fund will generally seek to maintain style, capitalization, and industry characteristics similar to its benchmark.  

VettaFi previously profiled JEPI and discussed the active management approach. The fund’s stock selections stem from a bottom-up, fundamental valuation process. Management identifies the most attractively valued stocks from a long-term earnings and cash flows standpoint. Then, the universe is further narrowed by finding those attractively valued stocks that also have low volatility from a price and earnings perspective. Accenture, Hersey, and Progressive were some of JEPI’s recent top holdings.   

Goldman Sachs Has More ETFs Coming 

Goldman also filed for the Goldman Sachs U.S. Tech Index Equity Premium Income ETF. This ETF looks to be a future peer of the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ A). JEPQ launched in May 2022 and has already gathered $3.3 billion in assets. 

Amplify and Global X also have a strong suite of covered call ETFs. The Global X NASDAQ 100 Covered Call ETF (QYLD A-) and the Amplify CWP Enhanced Dividend Income ETF (DIVO A-) manage $7.5 billion and $2.8 billion, respectively.  

Given the persistent market volatility, we expect advisors to continue to look to covered call strategies. There’s room for more product development coupled with education to explain what makes each product unique. 

For more news, information, and analysis, visit VettaFi | ETFDB.

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