{"id":38977,"date":"2023-10-31T07:26:59","date_gmt":"2023-10-31T07:26:59","guid":{"rendered":"https:\/\/prosfunds.com\/markets\/the-market-may-be-going-nowhere-these-income-etfs-could-benefit\/"},"modified":"2023-10-31T07:27:01","modified_gmt":"2023-10-31T07:27:01","slug":"the-market-may-be-going-nowhere-these-income-etfs-could-benefit","status":"publish","type":"post","link":"https:\/\/prosfunds.com\/?p=38977","title":{"rendered":"The Market May Be Going Nowhere. These Income ETFs Could Benefit."},"content":{"rendered":"<div id=\"js-article__body\" itemprop=\"articleBody\" data-sbid=\"WP-BAR-0000785754\">\n<div data-layout=\"wrap\n              \" data-layout-mobile=\"\" class=\"\n        media-object\n        type-InsetMediaIllustration\n          wrap\n  article__inset\n        article__inset--type-InsetMediaIllustration\n          article__inset--wrap\n    article__inset--lead\n  \"><\/p>\n<p>        <!-- eventually when we know what this card will be we can change it and leave this one --><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        img-wrap\n        article__inset__image\n      \" itemscope=\"\" itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<\/figure><\/div>\n<p>Stocks are dithering and that may be good news for investors hoping to benefit from an options strategy known as covered calls.\u00a0<\/p>\n<p>\u201cA sideways market, whether it\u2019s trending upward or slightly downward, is a really terrific environment for covered call writing,\u201d said Ray Di Bernardo, portfolio manager of the $76.7 million<br \/>\n        Madison Covered Call ETF<br \/>\n       (ticker: CVRD) launched in August.<\/p>\n<div class=\"paywall\">\n<p>While there are variations on the strategy, the basics are the same: The fund starts by building a portfolio of individual stocks or a basket of shares, such as the<br \/>\n        S&amp;P 500 inde<br \/>\n      x, then sells call options against those stocks.<\/p>\n<p>If the shares rise above a specified \u201cstrike\u201d price, the fund pays the buyer the difference between the stock price and the strike price. If the stock tumbles or doesn\u2019t rise enough to hit the exercise price, the fund keeps the income. In some instances, funds will use individual stock options, which can be \u201ccalled away,\u201d meaning that if the share price rises above the strike price, the stock will return to the buyer of the option.<\/p>\n<p>The trade-off is that the fund gives away some of the potential upside from the stock market in return for steady income.\u00a0<\/p>\n<p>\u201cOver a full market cycle you should get returns that are similar to the S&amp;P 500 or whatever market you\u2019re investing in, but you won\u2019t get the high highs and you won\u2019t get the low lows,\u201d said Di Bernardo. \u201cYou\u2019ll get to the same end result with much less volatility along the way.\u201d<\/p>\n<p>The main drawback is that they are left in the dust during big rallies. \u201cThe only time that this strategy really lags behind dramatically is when you have a straight up bull market,\u201d he added. \u201cYou participate, but you\u2019re certainly not going to be able to keep up in that environment.\u201d<\/p>\n<p>These strategies aren\u2019t designed to beat the market, but may be a useful tool in a diversified portfolio, especially when the stock market is moving sideways.<\/p>\n<p>\u201cEven with higher interest rates, people are looking for differentiated income streams,\u201d said Troy Cates, managing partner at NEOS Investments and a portfolio manager of the $355.7 million NEOS S&amp;P 500 High Income ETF (ticker: SPYI).\u00a0\u201cInvestors are looking for ways to stay invested in the equity markets and bring in real income.\u201d<\/p>\n<p>\n        NEOS S&amp;P 500 High Income ETF<br \/>\n       launched just over a year ago and is up 9.53% this year. The fund\u2019s performance is nearly keeping pace with the broader market:<br \/>\n        SPDR S&amp;P 500 ETF Trust<br \/>\n      (SPY) is up 9.89%.<\/p>\n<p>Its distribution yield\u2014which includes the cash flow from option premiums\u2014is 12.2%.<\/p>\n<p>The fund tracks the S&amp;P 500 while also selling call options tied to the index for additional yield. \u201cWe\u2019ve captured most of that upside of the S&amp;P 500 while still bringing in real income and paying that out to shareholders,\u201d said Cates.\u00a0<\/p>\n<p>Todd Rosenbluth, head of research at VettaFi, a financial research and data company, said investors are increasingly looking toward more defensive equity strategies and using ETFs to gain that exposure.\u00a0<\/p>\n<p>The king of covered call strategies is the $28.4 billion<br \/>\n        JPMorgan Equity Premium Income ETF<br \/>\n       (JEPI). In 2022, the fund lost 3.5% on a total return basis\u2014but handily outperformed the 18.1% plunge for the S&amp;P 500. This year it is struggling with annualized total returns of 0.68%.<\/p>\n<p>The fund\u2019s strategy is building a \u201cdefensive\u201d portfolio with managers actively picking individual stocks from the S&amp;P 500 and then selling S&amp;P 500 call options.<\/p>\n<p>\u201cWhat we\u2019re solving for is lower volatility, higher quality companies\u2014the blue chip companies that have really steady earnings and less volatility than the market,\u201d said Matt Bensen, junior portfolio manager of the JPMorgan Equity Premium Income ETF. \u201cWe\u2019re owning stocks and trading off some of the market\u2019s potential upside for the bird in the hand of the income.\u201d<\/p>\n<p>Part of the reason the fund has underperformed this year is because it is underweight technology stocks. \u201cWhen you have a very narrow rally and it\u2019s very concentrated, our equity portfolio won\u2019t keep up,\u201d said Bensen.\u00a0<\/p>\n<p>But, he added, the fund has a 30-day SEC yield of 7.9%, which is in the middle of the fund\u2019s goal of delivering an annual yield of 7%-9% over the long term. \u201cThere\u2019s no free lunch,\u201d added Bensen. \u201cWe don\u2019t expect to capture all of the market\u2019s return over a short period, but with this strategy you get a lot less volatility and a good stream of income.\u201d<\/p>\n<p>Write to Lauren Foster at lauren.foster@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.marketwatch.com\/articles\/stock-market-etf-funds-invest-5f8619e8?mod=markets\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Stocks are dithering and that may be good news for investors hoping to benefit from an options strategy known as covered calls.\u00a0 \u201cA sideways market, whether it\u2019s trending upward or slightly downward, is a really terrific environment for covered call writing,\u201d said Ray Di Bernardo, portfolio manager of the $76.7 million Madison Covered Call ETF [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":38978,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[33],"tags":[],"class_list":{"0":"post-38977","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Market May Be Going Nowhere. 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