Whether it’s price appreciation or fixed income, it’s a tricky environment for investors as stocks and bonds continue to correlate downward thanks to inflation fears. The current market calls for risk mitigation, but fixed income investors can still get yield with the right exchange traded fund (ETF).

It’s been another week of sell-off pressure as the bear market continues to weigh on the minds of investors. Rising interest rates are adding to a wall of worry, causing recession fears to enter into the fray.

“The volatility today (June 14) is a testament to the uncertainty going into the FOMC meeting as well as concerns about the impact such an aggressive ramp of tightening could have the economy,” said Seema Shah, chief global strategist at Principal Global Investors. “The 75-basis-point possibility was a far-flung risk this time last week, so market participants are having to quickly revisit Fed, economy and market forecasts.”

Income and Risk Mitigation

It seems like protecting the downside while still getting monthly income might be asking too much of the markets. It doesn’t always have to be with the Global X S&P 500 Risk Managed Income ETF (XRMI), which offers monthly distributions.

This ETF employs a protective net-credit collar strategy for investors seeking the income characteristics of a covered call fund while mitigating the risks of a major market sell-off with a protective put. XRMI seeks to achieve this outcome by owning the stocks in the S&P 500 Index (SPX), while buying 5% out-of-the-money put options on SPX and selling at-the-money call options on the same index.

Income can also be derived at the same time, giving fixed income investors an alternative to bonds. As opposed to the S&P 500’s loss of 20% year-to-date, XRMI is down 13%.^SPX Chart

Highlights of XRMI:

  • Alternative income source: XRMI seeks to generate an alternative source of income by selling covered calls.
  • Risk-minded approach: XRMI buys protective puts to mitigate the risks of a major market sell-off.
  • Monthly distributions: XRMI expects to make distributions on a monthly basis.

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