Invesco Adds Option Income to QQQ, RSP

Anticipating increased investor skittishness, Invesco Ltd has introduced an option overlay strategy on two of its more popular ETFs that is designed to tamp down volatility while producing an income stream.

The actively managed Invesco QQQ Income Advantage ETF (QQA) and the Invesco S&P Equal Weight Income Advantage ETF (RSPA) kick off the new Invesco Income Advantage Suite by adding “consistent yield” to the Nasdaq 100 Index represented in the Invesco QQQ Trust (QQQ) and the S&P 500 Equal Weight Index represented in the Invesco S&P 500 Equal Weight ETF (RSP).

“We’re taking two of our flagship strategies and extending those to offer attractive monthly income and lower volatility while still participating in the markets,” said John Burrello, senior portfolio manager for the new ETFs.

He added that the appetite for more conservative option-overlay strategies is being fueled by current market and economic conditions, stating that the income is “untethered to Fed action or interest rate oscillation.”

The new products debut amid macroeconomic uncertainties, including the current U.S. presidential election and data showing the economy slowing. Major market indexes have hovered near record highs but some analysts are expecting a downturn. 

Adding Income to QQQ, RSP

Invesco, which has more than $1.7 trillion in total assets under management, has $580 billion across 224 exchange-traded funds.

Burrello said Invesco has employed similar option overlay strategies in some of its mutual funds and institutional accounts dating back to 2018.

“There is some upside performance reduction, but less so than some other approaches that use option overlays,” he said, explaining that the income-generating options strategy is only applied to half the underlying portfolio.

The diversified options portfolio, which will be laddered according to market conditions, is designed to continuously allow for more upside market participation than existing less diversified covered call ETFs, Burrello said.

“Our existing experience as long-term stewards of consistent income and performance will be applied with our full focus in the new ETFs,” Burrello added.

So far this year, QQQ has gained 21.6%, and RSP has gained 9.7%.

The 29 basis point expense ratios for QQA and RSPA are being waived through at least the end of this year, Burrello said.