First Trust has announced the launch of the First Trust Vest S&P 500® Dividend Aristocrats Target Income UCITS ETF (“KNG”), on the London Stock Exchange, offering investors the opportunity to participate in both the growth and income potential of the Cboe S&P 500 Dividend Aristocrats Target Income Index Monthly Series.
The firm writes that the rules-based, buy-write index is designed to achieve an annualised level of income from stock dividends, as well as capital appreciation. KNG is First Trust’s debut Target Income ETF in a UCITS format.
The Target Income Strategy is a dynamic investment approach designed to provide a consistent level of income by responding to changing market conditions. It seeks to do so by harnessing options to convert uncertain future growth into upfront income, helping investors balance growth and income while potentially mitigating interest rate sensitivity.
The Target Income strategy is part of First Trust’s broader Target Outcome investment strategies, pioneered by Vest Financial LLC, offering investors a range of innovative solutions tailored to their specific investment objectives.
Fund details
KNG tracks the Cboe S&P 500 Dividend Aristocrats Target Income Index Monthly Series. The index is composed of two parts – an equal-weighted portfolio of the stocks contained in the S&P 500 Dividend Aristocrats Index (“Aristocrat Stocks”) and a rolling series of short (written) call options on each of the Aristocrat Stocks, known as “covered calls”.
Aristocrat Stocks are companies in the S&P 500 Index that have increased dividend payments each year for at least 25 consecutive years and meet certain market capitalisation and liquidity requirements.
The firm writes that by writing covered calls, the fund looks to convert a stock’s uncertain future total return into certain upfront premium income. It targets an annualised income level from dividends and option premiums that is approximately 8 per cent higher than the S&P 500 Index’s annual dividend yield.
The fund is managed by First Trust Advisors L.P. and sub-advised by Vest Financial LLC, a pioneer of the Target Income strategy.
“We’re pleased to introduce our first Target Income product to European investors,” says Rupert Haddon, Managing Director at First Trust Global Portfolios. “By employing a covered call strategy on a portfolio of elite dividend-growing companies, this fund offers a conservative investment approach with a notably attractive yield, potentially providing a stable addition to investment portfolios.”
Key features of KNG
· Backing the best dividend growers: KNG uses dividends as the main basis for stock selection. Dividend growth companies generally have a history of total return outperformance, particularly during periods of market turmoil.
· Moving beyond dividends with options. The fund enhances its income potential by selling call options on a portion of the stock holding. This serves to convert some of the future returns into upfront premium income.
· A dynamic solution: By combining stock selection with an innovative option strategy, KNG can “remodel” portfolios with higher income while maintaining growth prospects. The result is a dynamic solution to the dual challenge of generating reliable income while pursuing attractive growth.
KNG is now available for trading on the London Stock Exchange:
