Today WisdomTree is rolling out a fund designed to complement its existing $314 million WisdomTree CBOE S&P 500 PutWrite Strategy Fund (PUTW). The brand-new WisdomTree CBOE Russell 2000 PutWrite Strategy Fund (RPUT) covers the small-cap space as represented by the Russell 2000 Index.
RPUT comes with an expense ratio of 0.43% and lists on CBOE Global Markets, the parent company of ETF.com.
“I actually feel like the market environment we’re in today is really one of the best environments for writing options strategies like PUTW and RPUT, which is when people believe the market is getting in the later innings,” said WisdomTree Director of Research Jeremy Schwartz. “When upside is limited, you want to find a strategy to mitigate downside and protect against volatility.”
With the addition of RPUT, WisdomTree now offers put-write strategies on two indexes often paired together by institutional investors, despite the fact that they have very different methodologies. The S&P 500 Index comprises mostly large-cap stocks selected by a committee, while the Russell 2000 is comprises simply the smallest stocks by market capitalization in the broad Russell 3000 Index.
“Looking at the beta category, large-cap beta and small-cap beta are two of the biggest ETF categories generally, and now you have a put-write for each of the two major indexes, the S&P 500 and the Russell 2000,” Schwartz said.
The fund’s strategy involves writing fully collateralized at-the-money put options on the Russell 2000 and rolling its exposure every month. This means investors get the premium income from selling the options while seeing less volatility than they would by simply replicating the equity index. The fund also invests the cash from the premiums in Treasury vehicles, generating added returns.
RPUT is notable because it is only the second put-write strategy ETF to currently list on the market (PUTW was the only one still trading until now) and the first to focus on small-caps. Schwartz notes that options strategies are a largely uncovered category for ETFs, with less than 10 funds that focusing on those approaches.
“If you think about what are the investment strategies that have resonated with investors over time, it’s taking a strategy that’s complex to implement and making it simple for them,” he said.
“Options strategies are one of the most common investment strategies advisors use. But they have to roll the options themselves, etc. This is a simple way to execute a very common investment strategy,” Schwartz added, drawing parallels with currency hedging, which was common among institutional investors, but more difficult for individuals to execute before the strategy became available in an ETF wrapper.