Global X has expanded its suite of covered call ETFs with the listing of the Nasdaq 100 ESG Covered Call ETF (Nasdaq: QYLE) and the S&P 500 ESG Covered Call ETF (NYSE Arca: XYLE), which begin trading on the Nasdaq and New York Stock Exchange, respectively. The funds are the first covered-call related ESG offerings from GlobalX whose portfolios implement a two-pronged ESG and income-oriented strategy.
These new funds invest in the equities of large-cap companies that display positive environmental, social, and governance (ESG) characteristics by tracking indexes that employ an ESG screening process. They also seek to increase income potential by following a covered call strategy that sells call options.
QYLE buys the stocks in the Nasdaq 100 ESG Index and “writes” or “sells” call options on the Nasdaq-100 Index. XYLE, meanwhile, buys stocks in the S&P 500 ESG Index and writes or sells corresponding call options on the same index.
The demand for ESG investing is being driven by investor interest globally. PricewaterhouseCoopers estimates that by 2026, ESG investing assets, globally, could reach $33.9 trillion, representing over one-fifth of total assets under management.
U.S.-listed, passive ESG funds represent a $70 billion opportunity to induce shifts in corporate behavior due to the exclusion and weighting criteria based on ESG metrics. Meanwhile, covered call strategies using index options are a powerful solution for investors to potentially generate income and monetize volatility in an effort to achieve an extra source of income.
The Nasdaq 100 ESG Index and S&P 500 ESG Index implement ESG screening criteria by starting with an initial universe of their parent equity indices, then incorporating ESG investment screens through the use of ESG scores and exclusions related to controversial business activities, United Nations Global Compact compliance, and ESG controversies.
The ESG scores use multiple data points across a company’s business operations including issues such as environmental supply chain, employee management, human rights, board diversity and independence. The final score reflects data aggregated across these multiple ESG considerations and controversial business activities may be excluded if they are seen as non-beneficial to society or actively working against climate change.
Both funds have an expense ratio of 0.60%.