There’s a lot of cash sitting on the sidelines at the moment — a record $6 trillion, in fact. But the market environment in early 2024 is not the same environment that it was in early 2023. So, with inflation down, markets up, and the Fed looking to cut rates later this year, many investors are looking to redeploy that capital.
The question, of course, is where does one put that cash? Obviously, it depends on a myriad of factors — including the investors’ long- and short-term investment goals. But one goal may be to generate steady, consistent income. After all, what’s the point of putting that cash back into the market if it’s not going to be put to work?
For investors seeking consistent monthly income while participating in most market appreciation, the Parametric Equity Premium Income ETF (PAPI ) may be what they’re looking for.
High Income, Low Risk
The actively managed PAPI provides exposure to U.S. companies that have demonstrated high current income and low levels of risk.
PAPI uses two principal strategies to achieve its objective. First, it actively maintains a portfolio of dividend-paying equities, primarily common stocks of U.S. companies selected from the Russell 3000. Second, it sells (writes) option contracts on the SPDR S&P 500 ETF Trust (SPY ) to generate additional yield.
The fund’s portfolio is rebalanced periodically to maintain diversification and is reconstituted on an annual basis. PAPI’s portfolio managers seek to manage portfolio risk by using a quantitative model to construct a diversified portfolio of durable dividend-paying companies.
“Advisors are increasingly turning to covered call strategies for defensive equity purposes,” said VettaFi’s head of research Todd Rosenbluth. “Market volatility is likely to persist in 2024.”
PAPI is one of five active ETFs that Morgan Stanley announced in October. In addition to PAPI, the ETFs include another Parametric fund (targeting alternative income) and three Eaton Vance ETFs (focused on fixed income).
For more news, information, and analysis, visit The ETF Yield Channel.
