Amplify ETFs launched an actively managed income-oriented exchange traded fund centered around both dividend stocks and options income garnered through opportunistic covered calls.
On Thursday, Amplify ETFs came out with the Amplify YieldShares CWP Dividend & Option Income ETF (BATS: DIVO). DVIO has a 0.95% expense ratio.
DIVO is an actively managed ETF that will be loosely based on the Enhanced Dividend Income Portfolio (EDIP), an existing strategy managed by Capital Wealth Planning that is made up of mega cap, high quality, blue chip stocks designed to deliver income through selling short-term covered calls against 30% to 60% of underlying holdings to generate additional income.
Kevin Simpson and Josh Smith, each a portfolio manager of CWP, serve as portfolio managers of DIVO and are primarily responsible for the day-to-day management of the Fund.
“The DIVO launch is part of our long-term objective to build the Amplify YieldShares suite of income-oriented investment strategies. DIVO’s two-fold income approach may help to hedge traditional dividend investors’ portfolios from a rising rate environment,” Christian Magoon, ETF industry veteran and CEO of Amplify Investments, said in a note.
DIVO will hold between 20 to 25 dividend paying stocks taken from large-cap, high quality, and blue chip companies out of the S&P 500 Index that could, over time, sustain earnings and cash flow growth and increase their dividends.
Top holdings include International Business Machines 5.1%, Schlumberger 5.1%, Microsoft 5.1%, Cisco Systems 5.1% and Kraft Heinz Co. 5.0%.
Additionally, the active ETF tries to lower risk and enhance total return by tactically selling short-term call options on some, or all, of the individual stocks in the portfolio.
The covered-call options strategy allows an investor to hold a long position in an asset while simultaneously writing, or selling, call options on the same asset. Traders would typically employ a covered-call strategy when they have a neutral view of the markets over the short-term and just bank on income generation from the option premium.
While these buy-write strategies may not produce any phenomenal returns compared to the broader equities markets, their underlying option strategy helps them generate outsized yields.
The active ETF will seek to produce annual income of 4% to 7%.
For more information on new fund products, visit our new ETFs category.