Global X ETFs, the New York-based provider of exchange traded funds, announced today the launch of the Global X Russell 2000 Covered Call & Growth ETF (RYLG). The fund is Global X’s latest addition to its income family, which offers investors ETF strategies that look beyond traditional fixed income to help increase or diversify a portfolio’s yield potential.
The U.S. Consumer Price Index rose 8.3% from a year ago in August, down from summer peaks but still stubbornly high. As the Federal Reserve and central banks around the world continue to hike rates to combat this persistent inflation, conditions can make it difficult for traditional equities and bonds to perform.
Many investors are struggling to find asset classes that can help them to navigate volatility and manage interest rate risk while maintaining their income objectives. Covered call strategies can play an important role in the modern investor’s portfolio, offering a diversified potential source of income while potentially mitigating downside risks.
Historically, covered call strategies required investors to trade options themselves, a task requiring expertise and frequent hands-on trading. But the availability of ETFs that incorporate covered call strategies can help investors efficiently add these strategies to their portfolios. RYLG writes calls on only half of the portfolio, allowing investors to still capture half the upside potential of the underlying index.
“As investors weigh the impact of continued central bank rate hikes and stubborn inflation, Covered Call & Growth Strategies can be an effective way to navigate choppy and sideways markets,” said Rohan Reddy, director of research at Global X ETFs, in a news release. “This fund leverages Global X’s expertise to offer covered calls on the Russell 2000 index of small-cap stocks, helping diversify income portfolios away from traditional sources in an uncertain environment while still allowing investors to capture potential upside.”
The fund is designed to track the Cboe Russell 2000 Half BuyWrite Index, which measures the performance of a covered call strategy that holds a theoretical portfolio of the underlying stocks of the Russell 2000 and sells a succession of one-month at-the-money covered call options on the Russell 2000. The covered call options correspond to approximately 50% of the value of the Russell 2000.
The Cboe Russell 2000 Half BuyWrite Index reflects the performance of the component securities of the Russell 2000 Index combined with written (sold) at-the-money call options corresponding to the value of 50% of the value of the portfolio of stocks.
RYLG will join the Global X Income suite of over 20 ETFs and more than $17 billion in assets under management.
“Advisors have sought out income generating ETF alternatives this year during the rising rate environment and Global X has been a beneficiary,” said VettaFi’s head of research Todd Rosenbluth. “It is great to see them expand their offering to include a small-cap focused version.”
The Global X Nasdaq 100 Covered Call ETF (QYLD ), the largest ETF in the Global X stable, pulled in $2.7 billion in the first nine months of 2022.
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