ETF Spotlight on PowerShares S&P 500 BuyWrite Portfolio ETF (NYSEArca: PBP), part of an ongoing series.
Assets: $116.5 million.
Objective: The PowerShares S&P 500 BuyWrite Portfolio fund is based off the CBOE S&P 500 BuyWrite Index. The Fund will hold a 80% or more of its assets in common stocks of the 500 companies on the S&P 500 Index and writes, or sells, call options. Specifically, the fund sells one-month at-the-money S&P 500 call options against the portfolio at regular intervals.
Buy-Write is a trading strategy that utilizes call options on a position to generate income from option premiums. The trader will only lose money if the market price of a stock rises above the exercised price upon maturity of the option, which tends to occur during quickly rising markets.
Holdings: Top holdings include: Apple (NasdaqGS: AAPL) 3.9%, Exxon Mobil (NYSE: XOM) 3.4%, Microsoft (NasdaqGS: MSFT) 1.9%, International Business Machines (NYSE: IBM) 1.9% and Chevron (NYSE: CVX) 1.8%.
What You Should Know:
- Invesco PowerShares sponsors the fund.
- PBP has an expense ratio of 0.75%.
- The fund holds 501 securities.
- Sector allocations include: consumer discretionary 11.0%, consumer staples 10.9%, energy 12.3%, financials 14.3%, health care 11.4%, industrials 11.0%, information technology 20.4%, materials 3.7%, telecommunication services 2.8% and utilities 3.6%.
- PBP has a 12-month yield of 10.0%.
- The ETF is up 1.7% over the past month, up 11.3% over the last three months and up 7.5% over the past year.
- The fund is 0.1% above its 200-day exponential moving average
- Buy-write strategies “provide option premium income that can help cushion downside moves in an equity portfolio, but buy-writes often underperform stocks in rising markets,” according to the CBOE. “Buy-write strategies have an added attraction to some investors in that buy-writes can help lessen the overall volatility in many portfolios.”
- The options generate income that can help offset potential losses or boost the fund’s annual appreciation – all good attributes for the income-minded investor.
The Latest News:
- Covered call U.S. equity funds can generate dividend yields up to three times higher than that of the S&P 500 while providing a cushion during volatile times, reports Emma Dunkley for Citywire.
- Gary Potter, co-head of the multi-manager team at Thames River Capital, believes that a covered call fund can take advantage of the continued volatility this year.
- The strategy, though, will not perform well if it is a very bullish market or upward trending, Potter added.
PowerShares S&P 500 BuyWrite Portfolio ETF
For past stories in this series, visit our ETF Spotlight category.
Max Chen contributed to this article.