Use a Derivative Income ETF to Find Income

Many investors are currently trying to balance the need to protect their portfolios from interest rate volatility while staying invested in the market and maintaining a reliable income source.

A potential solution is a derivative income ETF, like the Invesco QQQ Income Advantage ETF (QQA A-), the Invesco S&P 500 Equal Weight Income Advantage ETF (RSPA B+), or the Invesco MSCI EAFE Income Advantage ETF (EFAA B+).

The derivative income ETF category has seen tremendous growth recently. The category has $84 billion in assets under management across over 80 strategies. Notably, over 30 derivative income ETFs have launched this year alone.

The strategy underpinning Invesco’s three derivative income ETFs has two components to it, which help set it apart from category peers. The first part is a passive equity sleeve. The second is an active options income overlay, which includes both calls and puts. 

The strategy effectively provides investors exposure to passive equity in an index that they’re familiar with, while also providing an option overlay to provide that consistent income stream, Rene Reyna, head of thematic ETF strategy at Invesco, told VettaFi. 

QQA provides exposure to the same innovative companies as Invesco QQQ ETF (QQQ B), with each tracking the Nasdaq-100. However, QQA has added features designed to generate consistent income. 

Meanwhile, like the Invesco S&P 500 Equal Weight ETF (RSP B+), RSPA tracks the S&P 500 Equal Weight Index, but it’s also designed to provide consistent monthly income and maintain growth potential —all with less volatility and downside risk mitigation.

Finally, EFAA provides exposure to the MSCI EAFE Index combined with an active option income overlay for income generation, downside protection and upside participation.

QQA, RSPA, and EFAA are targeting distribution rates of 10%, 9%, and 8%, respectively, according to Reyna. 

For more news, information, and analysis, visit the Innovative ETFs Channel.