Infrastructure Capital Advisors has launched an actively managed ETF combining US equities with an options strategy designed to generate monthly income while also seeking capital growth. The Infrastructure Capital S&P 500 Option Income UCITS ETF, launched with HANetf, begins trading on the London Stock Exchange today, 18 September.
The Ireland-domiciled fund has a total expense ratio of 0.8% and trades in London under the tickers SPYC in US dollars and SPYI in sterling. It is also listed on Xetra and Borsa Italiana.
Rather than simply matching the S&P 500’s company weightings, the manager selects stocks using valuation and profitability analysis. It can hold more or less of individual businesses than the index, depending on its assessment of their prospects.
The options strategy is also actively managed. The fund can sell short-dated call options on individual holdings or the S&P 500, varying the proportion of the portfolio covered, exercise prices and expiry dates. The aim is to earn option premiums while preserving some potential for share-price gains.
This is Infrastructure Capital’s third ETF on the HANetf platform, alongside the Infrastructure Capital Preferred Income UCITS ETF and the Nuclear Renaissance UCITS ETF.
Our view
David Batchelor, senior analyst at QuotedData, said: “The interesting feature here is the scope for active management on both sides of the portfolio. Choosing which shares to own is one decision; deciding how much of their potential upside to exchange for option income is another. In principle, that flexibility could help the manager strike a more considered balance between generating income today and leaving room for capital growth.
The underlying trade-off nevertheless remains. Selling call options generates premiums, but can mean giving up gains above an agreed price. Investors also remain exposed to falls in the equity portfolio. The key measure for investors should therefore be total return: whether the income generated by the strategy, combined with changes in the value of the portfolio, produces an attractive outcome after charges.
We would also distinguish the regularity of payments from the sustainability of returns. HANetf says distributions may be paid from capital when income is insufficient. Monthly payments may be useful to investors drawing an income, but they are not, by themselves, evidence of investment success. Our focus would be on the combination of distributions and changes in capital value, after charges, and whether the manager’s flexibility delivers a worthwhile balance between the two”.
