Cboe Vest, majority-owned asset management subsidiary of Cboe Global Markets, Inc., has launched its first ETF under its new Cboe Vest brand, providing investors with a so-called second generation of option-based index strategies.
On Tuesday, Cboe Vest rolled out the Cboe Vest S&P 500 Dividend Aristocrats Target Income ETF (Cboe: KNG), which has a 0.75% expense ratio.
The new Cboe Vest S&P 500 Dividend Aristocrats Target Income ETF tries to reflect the performance of the Cboe S&P 500 Dividend Aristocrats Target Income Index Monthly Series, a rules-based index designed with the primary goal of generating income from stock dividends and option premiums from overwriting a small portion of the stock holdings that is approximately 3% over the annual dividend yield of the S&P 500 Index and a secondary goal of generating price returns that are proportional to the price returns of the S&P 500 Index, according to a prospectus sheet.
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This options strategy tries to fill the gap in a low bond yield environment and concerns over fixed-income securities as a source of regular income due to rising rate fears.
Options 2.0 ETF Strategies
“ETFs have come a long way since the launch of market-cap-weighted equity strategies in the 1990’s. KNG marks the beginning of ‘Options 2.0’ ETF strategies that seek to incorporate inventive uses of options to achieve return features consistent with a targeted goal (in this case the level of income) in portfolios,” Karan Sood, CEO of Cboe Vest, said in a note.
The so-called Options 2.0 strategies are an evolution from the first-generation of simple but fully covered-call and put writing options strategies. In this case, KNG combines a covered-call or buy-write strategy with long-term capital appreciation associated with a dividend growth factor.
Specifically, the underlying index includes two parts: An equal-weight portfolio of the stocks contained in the S&P 500 Dividend Aristocrats Index that have options that trade on a national securities exchange, and a rolling series of short call options on each of the Aristocrat stocks.
“Investors have been challenged since the global financial crisis to find sources of income without introducing duration and credit risk into their portfolios. KNG, with its dividend grower stock selection and covered-call options strategy, offers a novel approach,” Steve Neamtz, President of Cboe Vest, said.
For more information on new fund products, visit our new ETFs category.
CORRECTION: CBOE Vest, a subsidiary of Cboe Global Markets Inc.