Generate Income via Dividends & Options With This Active ETF

Buy-write strategies enable income investors to benefit from both dividends and option-based income. For example, you can generate predictable income from option premiums by writing call options against a long stock position. At the same time, you can keep the dividends from the long stock position unless the buyer exercises the option.

For example, the Global X NASDAQ 100 Covered Call ETF (QYLD), an ETF that writes call options against a long NASDAQ 100 portfolio, has a 12-month yield of 12.53%. That’s much higher than the Invesco QQQ Trust ETF’s (QQQ) 0.71% dividend yield. Similarly, the Amplify CWP Enhanced Dividend Income ETF (DIVO) offers an attractive 4.86% yield.

Of course, buy-write and covered call strategies sacrifice upside potential for higher yields. Option buyers don’t see additional gains if the underlying long stocks move sharply above the strike price. As a result, buy-write strategies are ideal for income investors or those with a neutral to mildly bullish outlook on the market.

Main Management’s Main BuyWrite ETF (BUYW) adds a unique spin to the conventional buy-write strategy by taking an active approach. Rather than implementing the process on an existing index of stocks, the managers invest in a portfolio of ETFs selected through a fundamental revision to the mean analysis. Then, they sell call options (or secured puts) to dampen the volatility.

The fund’s largest holdings include:

 

• The SPDR S&P 500 ETF (SPY) – 39%
• The SPDR Consumer Staples ETF (XLP) – 15%
• The Invesco NASDAQ 100 ETF (QQQM) – 10%
• The iShares Semiconductor ETF (SOXX) – 10%
• The SPDR S&P Biotech ETF (XBI) – 8%

It’s also worth noting that the fund invests in international opportunities. For example, the KraneSahres CSI China Internet ETF (KWEB) represents about 3% of its portfolio. And the fund managers may invest in other international opportunities that arise based on its revision to the mean analysis, adding global exposure to any portfolio.

BUYW is most suitable for income investors seeking to add income to their portfolios. With its mean reversion strategy, the fund’s beta coefficient clocks in at just 0.57, which is significantly lower than comparable funds, like DIVO’s 0.78 reading, making it a potentially less-risky option.

However, the fund’s 1.31% expense ratio makes it one of the most expensive buy-write ETFs. By comparison, DIVO’s expense ratio comes in at just 0.55%. Therefore, investors should determine whether the actively-managed approach and potential income gains offset the higher expense ratio or whether a lower-cost fund may be a better option.

Main Management suggests a 10-20% allocation for its BuyWrite ETF, depending on the investor’s goals. By adding the fund to a diversified portfolio, investors can increase their income without taking on significant additional risk. Meanwhile, the BuyWrite ETF’s ETF-based holdings mean that investors are diversified from any company-specific risks.

Buy-write strategies are an excellent way to add income to any portfolio. While many buy-write and covered call ETFs already exist, Main Management’s Main BuyWrite ETF (BUYW) offers a unique take on the strategy with its mean reversion ETF selection process and global focus.

Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.