Management launched its first ETF in the U.S. Monday. Horizons
S&P 500Covered Call ETF (
) will hold stocks in the S&P 500 and sell calls on the
stocks it holds, known as writing covered call options.
Selling covered calls is similar to collecting rent on a stock
and is best used during a sideways or weakly uptrending market.
Should the stock hit the given strike price, the shares will be
"called" away. If it doesn't, the call seller gets to keep the
stock and pocket the premium.
The major risk is that a call seller could miss out on gains
if the shares get called away and the stock keeps on rising. So
the strategy would underperform in a strong bull market. Also,
premium income might not make up for stock losses in a sharply
HSPX will compete withPowerShares S&P 500 BuyWrite
Portfolio ETF (
), which has $198 million in assets. The major difference is that
HSPX will sell calls on the individual stocks while PBP sells
calls on the entire S&P 500 index.
In theory, the strategy sounds promising for investors seeking
dividend income. But in practice, the strategy not only costs
more but lags the market tremendously.
PBP yields less than 1% but charges 0.75% of assets for
expenses, while the plain vanilla SPDR S&P 500 (
) yields 2% and charges 0.09%.
PBP returned 3% year to date and 3% in the past 12 months
while SPY gained 13% and 20% over those periods. PBP returned an
average annual 7% the past three years and 1.7% the past five
years. SPY trumped it by a wide swath, averaging 15% and 6% a
year in those periods.
HPSX charges a 0.65% annual management fee.
Income From CEFs
Christian Magoon, former president of Claymore Securities
before it was bought out by Guggenheim Investments, rolled out
Friday the first ETF of his newly founded ETF firm, YieldShares,
based in Chicago.
YieldShares High Income ETF (
), tracking the ISE High Income Index, holds a basket of 30
closed-end funds. The index screens the universe of 600 CEFs,
selecting those with more than $500 million in assets and $100
million in average daily dollar trading volume. It picks the 30
highest-ranking CEFs based on discount to net asset value,
liquidity and yield distribution.
The portfolio has nearly 60% assets invested in equity CEFs,
26% in bonds CEFs and 15% in asset-allocation CEFs, which can
invest in anything their strategy calls for. CEFs in the ETF
trade an average of 7% below their net asset value, or NAV. As of
Friday the index, showed a yield of 9.5%, Magoon said.
Why buy YYY? Yield income, potential price appreciation and
diversification, says Magoon, who owns 200 shares himself.
YYY charges a total annual management fee of 1.65% of assets,
of which 1.15% covers fees of the underlying CEFs. It will
compete mainly withPowerShares CEF Income Composite (
), which has $465 million in assets after three years on the
New Flight To Colombia
IShares rolled out Thursday the second ETF offering exposure
to Colombia.IShares MSCI Colombia Capped ETF (ICOL) will compete
withGlobal X FTSE Colombia 20 ETF (GXG), which has attracted $141
million in assets since it debuted in February 2009.
"There is an increasing amount of foreign investment in
Colombia because of strong fiscal management, gradually declining
debt, positive trading ties with the world and business-friendly
economic policies focused on deregulation," iShares said in a
The index most heavily weights financials at 34.17% of assets,
energy 32% and utilities 15%.
The MSCI Colombia index has tumbled 22% year to date and 14%
in the past 12 months. As the No. 1 performing market the past
decade, it has returned an average annual 6%, 9% and 29% over the
past three, five and 10 years.