State Street Debuts New Sector Premium Income ETF Suite

State Street Investment Management announced today the launch of 11 Select Sector SPDR Premium Income Funds, marking the first suite of ETFs to employ sector-based premium income strategies, according to the announcement.

The investment management firm's new offerings combine exposure to specific market sectors with call-option strategies designed to generate additional income for investors. Each fund invests in shares of its corresponding Select Sector SPDR Fund while systematically selling call options on those holdings to produce premium income, according to fund prospectuses.

The launch builds on State Street Corp.'s (STT) position in sector investing, where it has operated since launching sector ETFs in 1998, according to the company. State Street manages over $325 billion in sector ETF assets globally and is looking to tap demand for income-focused strategies that provide sector exposure.

New SPDR Income Funds

The 11 new funds include the Technology Select Sector SPDR Premium Income Fund (XLKI), the Energy Select Sector SPDR Premium Income Fund (XLEI) and the Consumer Discretionary Select Sector SPDR Premium Income Fund (XLYI), among others, covering financials, healthcare, industrials, materials, utilities, real estate, consumer staples and communication services. Each fund carries a 0.35% management fee with no distribution or other expenses.

The funds allow investors to "implement a specific sector tilt while incorporating the potential for enhanced income generation in your portfolio with a single trade," Anna Paglia, chief business officer at State Street Investment Management, said in the announcement.

Options Strategy Details

The funds use covered-call strategies, selling call options on their holdings to generate income, according to the prospectuses. The options typically expire within one to two months, and the funds collect premiums from buyers who get the right to purchase shares at set prices.

Fund managers aim to balance the income from these premiums with the potential for stock price gains in their portfolios, according to the prospectuses. Before options expire, managers typically close them out and sell new options with later expiration dates.

Each fund invests at least 80% of its assets in securities from its target sector, either directly or through the underlying sector SPDR fund, according to the prospectuses. 

All 11 funds are managed by the same three-person team and will trade on NYSE Arca.