Generating portfolio returns can be a major issue for investors in a low interest-rate environment. While an investor can pursue higher income by extending maturities or accepting poorer credit, each of those options come with their own risks.
In the upcoming webcast, Total Return Alternatives: Balancing Portfolio Risks When Even Junk Yields Less than 5%, JD Gardner, Founder, and Chief Investment Officer, Aptus Capital Advisors; Adam Eagleston, Portfolio Manager, Driehaus Capital Management; and John Lueken, Executive Vice President and Chief Investment Strategist, CapWealth Group, will look at defined risk, “yield + growth” strategies that seek a complete approach to total returns, pursuing returns on capital on a foundation of return of capital.
Specifically, investors can look to something like the actively managed Aptus Defined Risk ETF (Cboe: DRSK) that incorporates a combination of a laddered bond portfolio strategy with options on U.S. equities to help investors achieve income and growth through a hybrid fixed income and equity approach.
What DRSK Is After
DRSK will try to generate income and capital appreciation by investing in 90% to 95% of its assets in investment-grade corporate bonds and the remainder in large-cap U.S. stocks while limiting downside risk.
The fixed-income portion is comprised of U.S. dollar-denominated, investment-grade corporate debt comprised of BlackRock’s iShares iBond ETF series with maturities roughly evenly spaced across each of the next seven to eight years. The investment is also known as a bond ladder strategy. The iBonds ETFs have a final payout in their maturity year and have regular monthly interest payments along the way.
Meanwhile, the remaining 5% to 10% of the portfolio holds at-the-money call options on 10 to 12 large-cap U.S. stocks or on one or more other U.S. large-cap ETFs, which will further help generate income for the investor.
A call option gives the purchaser the right to purchase shares of the underlying security at a specified price, or “strike price”, prior to an “expiration date”. The purchaser pays a cost or premium to purchase the call option. In the event the underlying security appreciates in value, the value of the call option will generally increase, and in the event the underlying security declines in value, the call option may end up worthless and the premium may be lost.
Financial advisors who are interested in learning more about defined risk strategies can register for the Tuesday, September 24 webcast here.