New AdvisorShares STAR Global Buy-Write ETF (VEGA)

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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 ( VEGA ) 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 "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 called."

The fund is managed by Partnervest Advisory Services of Santa Barbara, Calif. Its annual management fee is a hefty 2.01% of assets.

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 ( SPY ),iShares MSCI Emerging Markets Index ( EEM ),iShares Dow Jones U.S. Real Estate ( IYR ) andEnergy Select Sector SPDR ( XLE ).

"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 5%.

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 statement.

Among the 62 holdings, the largest positions areChina Mobile (CHL) weighted at 8%,CNOOC (CEO) 5%, China Shenhua Energy 5%, andPetroChina (PTR) 5%.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , ETFs
Referenced Symbols: EEM , IYR , SPY , VEGA , XLE

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