ETF Watch: Horizons Plans Covered Call Fund

Horizons ETFs has filed for another ETF that will implement a covered-call strategy. The Horizons Russell 2000 Covered Call ETF will join two other covered-call Horizons funds: one tied to the S&P 500 Index and the other to the Nasdaq-100 Index.

The fund will come with an expense ratio of 0.70% and track the CBOE Russell 2000 30-Delta BuyWrite Index. The fund’s benchmark is designed to reflect the performance of a portfolio of stocks replicating the small-cap Russell 2000 Index and a strategy that sells one-month out-of-the-money covered-call options on the same index, according to the prospectus.

The Horizons Nasdaq-100 Covered Call ETF (QYLD) launched in late 2013 and currently has nearly $92 million in assets under management; it comes with an expense ratio of 0.60%. Meanwhile, the Horizons S&P 500 Covered Call ETF (HSPX), which also launched in 2013, has $58 million in assets and an expense ratio of 0.65%.

Covered calls are generally seen as an insurance strategy, as they may slightly limit the upside returns of an investment, but they also protect against downside risk. The strategy also generates income due to the options buyer paying a premium to the option writer.

Contact Heather Bell at [email protected].