Daily ETF Watch: Recon Plans To Self-Index

Recon Capital, a firm hoping to carve out a niche in the world of ETFs with options overlays, has filed a new exemptive relief request to launch ETFs that will allow it, among other things, to market ETFs with indexes designed in-house.

The broad order covers passively managed foreign and domestic equities and fixed-income funds, 130/30 and long/short funds, and, as noted, so-called affiliated indexes that would be designed by Recon Capital itself.

Recon Capital already has three ETFs that are currently trading, including a covered-call strategy built around the Nasdaq 100 Index. The funds and their assets are as follows:

• Recon Capital DAX Germany ETF (DAX), $38 million
• Recon Capital FTSE 100 ETF (UK), $2.5 million
• Recon Capital Nasdaq 100 Covered Call ETF (QYLD | C-45), $20 million

The exemptive relief to market those three strategies was acquired through Sage Quant Management, which is now a part of Recon Capital. It not nearly as expansive as the most recent filing.

Officials at Recon Capital have told ETF.com that the firm has high hopes to carve out a niche for itself in the world of ETFs with options overlays. The company believes that in a period of rising rates—which is sure to come, sooner or later—covered-call strategies can be an effective way to protect returns at a time when bond funds may be serving up capital losses.

Recon Capital officials see options-related ETF strategies having the potential of growing strongly in the coming five years as rates begin to revert to some semblance of a historical norm.

The most successful ETF in this category to-date is the PowerShares S&P 500 BuyWrite Portfolio (PBP |B-66); it has about $405 million in assets. Such a fund, in a rough way, is said to serve up a returns profile not unlike an entire portfolio composed of 60 percent stocks and 40 percent bonds.