Global X ETFs has launched the Global X S&P 500 Covered Call UCITS ETF (XYLU) on London Stock Exchange (LSE) and Deutsche Börse Xetra.
The firm writes that the S&P 500 has enjoyed strong returns for most of the past decade during a low-interest rate environment but returns in the US equity market are beginning to slow as the US Federal Reserve is in the midst of its rate hiking cycle.
“In this uncertain environment, investors may consider turning to covered call strategies, which tend to thrive in choppy markets when income generation is higher through elevated premiums—at the expense of full upside participation. By purchasing stocks in the underlying S&P 500 index and subsequently writing covered calls on the index, XYLU offers investors an alternative income solution through which to express their views on the US equity market. It may also help diversify income portfolios away from traditional sources such as dividend-paying stocks or fixed income investments.”
“The US market is at a crossroads as the US Federal Reserve continues to raise rates and 10-year treasury yields increase, and investors are seeking returns in a potentially trendless market,” says Rob Oliver, Head of Business Development for Global X ETFs in Europe. “XYLU, Global X’s second addition to its Income suite of products in Europe, may help investors to capitalise on elevated premiums while retaining some upside potential in the U.S. market.”
By writing call options on a basket of equities while still holding the underlying assets, XYLU offers a covered call strategy which limits upside participation in the S&P 500 index but can generate steady income during turbulent periods. XYLU carries a total expense ratio of 0.45 per cent.