Next year will bring an array of policy and regulatory changes with wider-reaching implications for markets and investors. Heading into the new year, the Natixis Gateway Quality Income ETF (GQI ) is worth consideration for the variety of use cases it offers, including quality equity exposures and income generation.
Gateway Investment Advisers actively manage GQI and seek reliable cash flow from options premiums and dividends. It does so by investing in high-quality companies and complementing that approach with a laddered call option strategy. GQI fits within portfolios in three ways, providing investors with flexibility and diversification.
Conservative Equity Investing
GQI’s strategy entails investing in mid- and large-cap companies within the S&P 500® Index. Gateway also applies its proprietary quality score to measure securities using six different data points. These include return-on-equity, return-on-assets, cash-flow-to-assets, cash-flow-to-income, gross margin, and sales-to-assets.
The strategy also minimizes highly leveraged companies by measuring their debt-to-equity and debt-to-assets ratios. These data points are combined into a singular quality score, and the highest-scoring companies from the S&P 500® are included in the fund.
GQI’s screen for quality within the S&P 500® provides investors with broad-based exposure to equities. Its emphasis on quality complements various strategies, including minimum volatility and other targeted factor funds.
Income Generation
GQI also applies an option overlay strategy to its equity exposures. This entails investing in a portfolio of laddered, one-month, near-the-money calls on the S&P 500® Index. The options are sold weekly on a rolling basis, and the overlay covers half of the equity portfolio. This allows for the rest of the equity portfolio to capture the upside in markets, balancing income with capital appreciation.
GQI offers a diversified income stream by generating income from options premiums and dividends earned from equity holdings. This makes it a notable addition to an income portfolio with an options strategy that benefits in periods of elevated volatility. It also provides an alternative to existing dividend strategies within a portfolio.
A Complement to Existing Credit Exposures
The income earned from options premiums as well as dividends makes GQI a contender for yield generation compared to fixed income. GQI currently offers a 30-day SEC yield of 9.53% and a distribution yield of 8.72% as of November 19, 2024. Distribution yield annualizes the most recent distribution and is then divided by the fund’s NAV.
By generating income on options and dividends, the fund sidesteps the interest rate risk that bonds inherently carry. This makes GQI a potential complement or replacement for credit exposures, especially high-yield strategies.
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