AdvisorShares, the leader in actively managed ETFs, has rolled
out a new ETF that buys global ETFs and sells covered calls
against them. The goal: to generate income.
AdvisorShares STAR Global Buy-Write ETF (
) uses a strategy called, "Volatility Enhanced Global
Appreciation," or VEGA.
Used in buy-write strategies, a covered call is similar to
collecting rent on your stock or ETF. It involves selling calls
against stocks or other investments you own. Selling a call gives
the buyer the right to buy, or call, your stock at a given strike
price until the contract expires.
If your stock doesn't reach the given price, then you get to
pocket the premium and hold on to your shares. You pat yourself
on the back for a job well done.
If the stock price falls, you keep your shares and the premium
you collected cushions the loss.
However, if the stock hits the given price, the buyer "calls,"
or buys, the stock from you at the strike price. If the stock
keeps going up, you miss out on the gains and hit your head
against a wall.
When volatility is low, the portfolio managers will buy puts
to control for losses or hedge its bets. A put option is like an
insurance premium. It rises when a stock falls. It gives you the
right to sell a stock at a given strike price within a given
period. You profit if the stock falls deep below your strike
price as you would sell your shares at the strike price and
pocket the difference between it and the current price.
"It seems like if done correctly, covered-call ETFs can
enhance return and probably limit risk," said Simon Maierhofer,
founder of iSPYETF.com. "As with real covered calls, it's all
about the timing because you can lose a lot of upside if the
underlying index continues higher after the option is
The fund is managed by Partnervest Advisory Services of Santa
Barbara, Calif. Its annual management fee is a hefty 2.01% of
Upon launch Tuesday, VEGA had 54% of its assets in cash and
the rest equally spread among four ETFs that "represent a
globally diversified portfolio":SPDR S&P 500 (
),iShares MSCI Emerging Markets Index (
),iShares Dow Jones U.S. Real Estate (
) andEnergy Select Sector SPDR (
"This initial outsize cash position is solely a function of
the ETF launch occurring during a quarterly option expiration
week," said Jim Herrell, portfolio manager of VEGA and chief
investment officer at Partnervest. "Starting next Monday, new
option expirations will be available, and we'll have the account
100% invested according to the strategy's parameters."
Herrell plans to add more ETFs as VEGA collects more assets.
He's eyeing ETFs tracking agribusiness, bonds, basic materials
and precious metals. He notes that cash used as collateral for
put options will appear as cash on VEGA's statements.
VEGA competes withPowerShares S&P 500 BuyWrite (PBP),
which yields 10.2%.IPath CBOE S&P 500 BuyWrite Index ETN
(BWV), doesn't pay dividends.
New WisdomTree China ETF
WisdomTree, the purveyor of dividend-weighted ETFs, rolled out
Wednesday a new fund tracking China's market without exposure to
the financials sector.
WisdomTree China Dividend ex-Financials (CHXF) started trading
at $50 a share and charges 0.63% of assets a year in fees.
The ETF most heavily weights energy at 25% of assets,
materials 15%, telecom 14%, industrials 13%, consumer staples
13%, technology 7%, utilities 6% and consumer discretionary
The flagship China ETF,iShares FTSE China 25 Index (FXI), puts
52% of assets in financials and 19% in telecom.
"Investors should be able to access the growth potential of
China without taking on such concentration risk," Luciano
Siracusano, chief investment strategist at WisdromTree, said in a
Among the 62 holdings, the largest positions areChina Mobile
(CHL) weighted at 8%,CNOOC (CEO) 5%, China Shenhua Energy 5%,
andPetroChina (PTR) 5%.