Select Sector SPDR Trust Files For New Premium Income ETFs

The Select Sector SPDR Trust has submitted a registration statement with the U.S. Securities and Exchange Commission to launch 11 new premium income ETFs, according to a Wednesday filing.

The proposed funds will pair investments in the traditional sector ETFs with call option writing strategies, aiming to provide investors with enhanced income opportunities while maintaining exposure to sector-specific equities during a period of heightened market uncertainty.

The registration statement, filed as a Form N-1A, outlines plans for premium income versions of all 11 existing Select Sector SPDR ETFs, including sectors ranging from technology to utilities. Each new fund will maintain at least 80% of its assets in a combination of securities from the specific sector and income-generating option strategies, according to the filing.

The fund “seeks to provide current income while maintaining prospects for long-term growth of capital," states the filing for The Communication Services Select Sector SPDR Premium Income Fund, mirroring language used for all the proposed funds.

The new ETFs will systematically sell call options against their underlying sector ETF holdings, typically with expirations of one to two months, to generate additional income beyond traditional dividends, according to the prospectus.

Income Strategy Arrives Amid Market Volatility

The timing of these new income-focused products coincides with market volatility and divergent sector performance. According to a Thursday analysis from The Atlantic, the uncertainty around current trade policies "is doing plenty of economic damage," creating an environment where investors may seek income-generating strategies.

Source: FactSet

This market backdrop has produced varied results across sectors. According to FactSet data, the Technology Select Sector SPDR Fund (XLK) posted a 17.6% one-month gain, while showing an over 7% year-to-date loss. The Industrial Select Sector SPDR Fund (XLI) followed a similar pattern with a 14.3% one-month gain and a 2.1% year-to-date loss.

Defensive sectors have shown different results. The Utilities Select Sector SPDR Fund (XLU) delivered a 7.4% year-to-date return, while the Consumer Staples Select Sector SPDR Fund (XLP) posted a 4.2% gain year-to-date, according to FactSet data.

The Financial Select Sector SPDR Fund (XLF) posted a 12.2% one-month return and a 2.7% year-to-date performance, according to FactSet data. The financial sector joins industrials, real estate, communications and utilities as the only sectors to maintain positive year-to-date returns while also capturing double-digit one-month gains.

Covered Call Strategy

The call option writing strategy employed by the new funds aims to balance income generation with potential capital appreciation during these uncertain market conditions, according to the filing. The funds will "optimize the return from its use of call options by setting strike prices based on the sensitivity of an option's value to changes in price, time, and volatility," the prospectus states.

SSGA Funds Management, Inc., which serves as the investment adviser to the existing Select Sector SPDR ETFs, will manage the new funds using the same team, including Emiliano Rabinovich, Juan Acevedo and Raymond Donofrio, according to the filing.

Specific ticker symbols and expense ratios for the new ETFs have not yet been finalized, according to the prospectus.