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Horizons USA, a member of the Horizons ETFs Group, one of the largest collective families of exchange-traded funds in the world, has announced the launch of the Horizons S&P Financial Select Sector Covered Call ETF (HFIN) on the NYSE Arca.
Linked to the S&P 500 Financial Select Sector Stock Covered Call Index, the ETF uses an innovative covered call strategy designed to track and generate additional income from the constituents of the S&P Financial Select Sector Index.
Howard Atkinson, Managing Director of Horizons USA, said: “US stocks have been a great place to be invested over the last two years. Some Investors may feel that now is a good time to be looking at more defensive strategies to preserve some of their returns. A covered call strategy can keep you invested in equities and potentially lower the volatility of returns of those equities while attempting to generate additional income, which can mitigate losses, during certain market conditions.”
The fund will typically own all the securities of the S&P Financial Select Sector Index in substantially similar weights to the index and will sell or “write” out-of-the-money covered call options on up to 100% of each of the individual option-eligible securities in the portfolio.
A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from option premium) than the asset would otherwise provide on its own from dividends or other distributions.
Historically, during bear markets, range-bound markets and modest bull markets, this type of covered call strategy has generally outperformed its underlying securities. However, during strong bull markets, when the underlying securities may frequently rise through their strike prices, covered call strategies historically have tended to lag.
Atkinson added: “HFIN is the second ETF we’ve launched in the US market that replicates one of S&P’s covered call indices. HFIN uses the same methodology as the Horizons S&P 500 Covered Call ETF, which trades on the NYSE under the ticker HSPX. While the strong bull market in US stocks has made it difficult for this type of covered call strategy to outperform a reference stock index, we’ve been impressed with the ability of HSPX to deliver most of the market returns of the S&P 500. HFIN will seek to have a similar return profile and deliver most of the upside of the S&P Financial Select Sector Index and potentially outperform the index when it generates option premium income.”
The fund has a management fee of 0.70% and will make monthly distributions of dividend and net call option income.
Horizons USA serves as sub-adviser to the fund. Exchange Traded Concepts serves as adviser.