↵

Image Source: Pixabay

We launched our ETF Income Edge service a few months ago to help investors understand the rapidly growing world of high-yielding, option-strategy ETFs. Fund sponsors launch new funds into the category every week. Since using options allows for many strategies, I love reading about how a new fund plans to operate and its investment strategy.

A couple of recently announced ETFs have me very intrigued. I love the creativity of fund sponsors for these types of ETFs. Let’s take a look at the two funds.

The Invesco S&P 500 Equal Weight Income Advantage ETF (RSPA) started trading on July 17. The twist for this ETF is to have an equal-weight portfolio of the S&P 500 stocks. The S&P 500 index is market cap-weighted, so the shares of larger companies have a more substantial effect on the index’s value. The ten largest companies in the S&P 500 account for about 40% of the regular index value.

RSPA holds equal-weighted positions in the 500 stocks. This strategy changes the fund’s sector exposure compared to the major index. The S&P 500 has a 33% weighting in technology stocks. In contrast, the RSPA portfolio is weighted 15.7% in industrials, 14.8% in financials, and 13.1% in technology stocks. RSPA provides a much more balanced coverage of the economic sectors.

RSPA fund managers will invest in equity-linked notes (ELN) to generate income, similar to employing a covered call options strategy. In the world of options strategy ETFs, the use of ELNs is common. An ELN is a custom security that can be tailored to let the fund managers reach their return targets. Fund literature states that the fund targets a 9% dividend yield. Dividends will be paid monthly.

The Kurv Technology Titans Select ETF (KQQQ) started trading on July 22. The QQQ in the stock symbol gives us a clue that the fund will focus on the Nasdaq 100 stock index, which the QQQ ETF tracks. Here are some bullet points on the fund’s strategy from the Kurv website:

• Removing non-technology companies helps to gain purer exposure to the top technology growth stocks through smart security selection.
• Dynamic optimization: balance between physical and/or synthetic company exposure.
• To seek maximum growth, names are weighted based on momentum signals.
• Writing covered calls seeks to generate income on a stock with limited upside potential or low price momentum which can also serve as potential downside mitigation.

Reading between the lines (and the prospectus), it seems that the KQQQ managers will write covered call overlays on the lower momentum stocks in the portfolio and let the higher momentum stocks hopefully run with uncapped profits. It will be at least four to six months before we get an idea of how well the fund performs; however, Kurv has previously done a nice job with their single-stock covered call ETFs.

These are not funds you want to invest in right now. Newer options strategy ETFs need to gain some history so that you can see whether the strategy outlined in the prospectus works in the real world. I will track these along with dozens of other option strategy ETFs, making comparisons to recommend the best ones to my ETF Income Edge subscribers.

More By This Author:

Buy These ETFs For Big Dividend Yields From Bitcoin
3 CEOs With High-Yield Stocks You Need To Listen To
High-Yield Investments Outshine Tech Stocks