USCF announced today in a press release the launch of the USCF Gold Strategy Plus Income Fund (GLDX) that seeks results that correspond to the price of gold over the long term while also generating dividends from two sources.
GLDX accrues its dividend income from collateral interest income as well as selling gold call options and is sub-advised by SummerHaven Investment Management, LLC, an investment firm based in Stamford. SummerHaven and USCF have worked together to launch three previous ETFs, all based in commodities.
“Physical gold is a portfolio staple that has long provided inflation protection, diversification, and stability in volatile markets. However, gold doesn’t earn income on its own. GLDX attempts to add income to gold exposure,” said John Love, president and CEO of USCF, in the press release. “The ability to combine an income objective with exposure to the gold markets makes SummerHaven’s Gold Plus Income strategy a dynamic addition to our long standing partnership.”
The fund seeks to maintain significant exposure to the performance of physical gold and the gold futures markets by investing in negotiable warehouse receipts (gold warrants), fully margined and collateralized gold futures contracts. The fund can also transact in cash-settled options, options on futures contracts, forward contracts, and other options that are gold-related.
All COMEX gold warrants and gold futures are funneled through a Cayman Islands subsidiary that is wholly owned, thereby bypassing the need for a K-1 for investors. The fund will invest primarily in COMEX gold futures to achieve its price performance, but will also use COMEX gold warrants to do so.
GLDX also uses a “buy-write” or covered call where the fund purchases gold investments and writes (or sells) call options that are collateralized by the gold investments. Call options on gold give the purchaser the right to buy gold at a strike price; if the price of gold goes above the strike price, then the purchaser can make a profit by exercising their option. Purchasers pay a premium in order to exercise their option, and the fund earns revenue from the premium.
If the price of gold falls and stays under the strike price, the option holder makes no profit and the option seller profits off the premium. The fund will never seek to utilize leverage on its options.
GLDX also invests in U.S. government securities, which can be used to collateralize the fund’s portfolio, and the return on the collateralized assets are included in the fund’s total return.
“Covered call and ‘buy write’ strategies have been used by equity investors for decades seeking to generate income, and we’re excited to collaborate with USCF and bring this innovative gold strategy to ETF investors. USCF has launched several market-leading commodity ETPs since 2006, and now gold is part of their diversified ETP platform,” said Kurt Nelson, president of SummerHaven Investment Management. “GLDX offers an inflation hedging strategy for investors seeking exposure to the gold markets along with income.”
GLDX carries an expense ratio of 0.45% and is actively managed.
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