First Trust today announced the launch of the actively managed First Trust Small Cap Buy Write Income ETF (FTKI ). The fund has an expense ratio of 0.85% and lists on the NYSE Arca.
FTKI generates income by writing call options on the Russell 2000 Index, implementing a buy-write strategy. In this approach, the fund manager purchases stocks and simultaneously sells call options on those same stocks or related indexes. In this case, the fund manager purchases stocks that fall within the market cap ranges of key small-cap indexes, while writing options on the Russell 2000 Index.
The fund provides income through call options. Additionally, the potential upside of the small-cap stocks is limited by the options’ strike price. With options strategies, investors trade some upside for added income.
FTKI’s income model could be particularly appealing for investors seeking to smooth out the volatility often seen in small-cap equities.
See More: Understanding Buy-Write and Covered Call ETFs
“Income-oriented investors have sometimes overlooked allocations to small-cap stocks, where dividends are often sparse,” said Ryan Issakainen, senior vice-president and ETF Strategist at First Trust. “We believe FTKI could offer an effective solution for those seeking exposure to small-caps alongside the potential for a relatively high level of income.”
As of its launch, FTKI’s top portfolio holdings included FTAI Aviation Ltd. at 1.08%. It also includes Insmed Inc. at 0.95% and Argan Inc. at 0.85%.
First Trust currently has 169 ETFs listed in the United States with a total of $160 billion in assets under management.
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