Aptus Capital Advisors, which manages $2 billion in five exchange-traded funds, launched an income-focused ETF with exposure to shorter-duration government debt.
The actively managed Aptus Enhanced Yield ETF (JUCY) dipped slightly in its first day of trading.
The fund invests in debt such as Treasury- and agency-issued securities, and features an options overlay. It allocates 10%-20% of its assets to equity-linked notes, which provide exposure to the options strategy.
The launch comes as Federal Reserve interest rate hikes are boosting yields and stock markets are languishing. While the environment makes the prospect of income attractive to investors, Aptus says JUCY’s strategy is likely to do well in all types of market environments.
The fund follows “a true income strategy not reliant on long duration or sketchy credit,” Aptus Founder and Portfolio Manager JD Gardner said in a press release, adding that the fund’s launch comes in an “unsettled rate environment.”
Brad Rapking, the portfolio manager in charge of the fund, told ETF.com that investors can expect yields near 4% from its fixed income portfolio, after years of those types of investments yielding 1%-2%.
The fund, according to its prospectus, aims to provide investors with income and capital preservation. The high quality nature of U.S. government debt provides the capital preservation, while the exchange-linked notes—which provide exposure to the S&P 500 index and call options on that index—offer additional income beyond that provided by the fixed income portfolio.
In particular, the prospectus notes that the ELNs “provide recurring cash flow,” describing them as an important part of returns delivered by the fund.
Rapking said the ETF will “provide higher distributable income than in traditional fixed income without taking on the risk typically associated with higher yielding vehicles.” JUCY offers a fixed income risk level with a much more attractive yield, he said, noting that, ideally, the fund’s principal will remain fairly steady, while the overall strategy has the potential to generate 6%-8% in income.
The funds offered by Fairhope, Alabama-based Aptus are designed to provide advisors with institutional-type strategies.
JUCY has an expense ratio of 0.59% and lists on Cboe Global Markets.
Contact Heather Bell at [email protected]