Home etftrends.com Under the Hood of Equity Income ETF ‘PAPI’

Under the Hood of Equity Income ETF ‘PAPI’

An equity income ETF is potentially well positioned for the current uncertain economic environment.

Stocks fell Monday after Federal Reserve Chair Jerome Powell indicated that the Fed likely won’t begin to cut interest rates as early as investors hoped. Futures now show a roughly 15% chance of a March cut, down from 64% a month ago, the Wall Street Journal reported.

With widespread uncertainty around interest rates, elections and changing policy, and the remaining possibility of a recession, the Parametric Equity Premium Income ETF (PAPI) may look particularly compelling to investors right now.

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PAPI seeks to provide investors with consistent and sustainable monthly income while maintaining prospects for capital appreciation.

The fund combines a diversified, dividend-focused equity portfolio with selling call options on the SPDR S&P 500 ETF Trust (SPY). The strategy expects to generate additional yield in a tax-efficient manner.

The equity income ETF’s distribution yield is 9.72% as of December 31, 2023.

Looking Inside Parametric’s Equity Income ETF

PAPI provides exposure to an actively managed portfolio of U.S. companies that have demonstrated high current income. As mentioned above, the fund incorporates a systematic call-writing program that seeks to generate additional yield.

Current holdings in PAPI include M.D.C. Holdings (MDC)United Bankshares (UBSI)Paychex (PAYX)Watsco (WSO), and Juniper Networks (JNPR).

The equity income ETF primarily delivers exposure to large caps. Over 62% of PAPI by weight is invested in large-cap companies and 32% by weight is in midcap companies. Just 2% of PAPI by weight is in small-cap companies, according to ETF Database.

PAPI is considerably less concentrated than the benchmark Russell 1000 Value index. Parametric’s ETF holds 185 securities, with the top 10 names amounting to just 10% of the fund’s assets by weight.

For more news, information, and strategy, visit The ETF Yield Channel.

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