NEW YORK, Feb. 24, 2022 /PRNewswire/ --Global X ETFs, the New York-based provider of exchange-traded funds (ETFs), today announced the launch of the Global X Dow 30® Covered Call ETF (DJIA). DJIA is Global X's latest addition to its Income family, which offers investors strategies that look beyond traditional fixed income in an effort to help increase or diversify a portfolio's yield potential. DJIA now represents the sixth fund in the Global X Covered Call suite of ETFs that currently has over $8 billion in assets under management.i
Inflationary pressures are proving stickier amid extended supply chain disruptions and strong demand, causing the Federal Reserve to likely tighten monetary policy and potentially leading to increased volatility. Finding appropriate sources of yield is a key challenge for income investors looking for segments of the market that can withstand inflation and rising rates. Fixed income presents duration risk, or the sensitivity of a fixed income holding's value to changes in interest rates, to investors. Equities haven't been immune either, with major broad market indices struggling this year with rising rates. Covered call strategies like DJIA may be an intriguing alternative for investors, as they don't present duration risk and can diversify return streams in a portfolio given potentially different sector exposures. Covered call strategies can also offer investors higher income potential than traditional income strategies because of the positive correlation of volatility to premiums received.ii
"Covered call strategies like DJIA can serve a variety of objectives for investors, particularly with its income potential in the rising rate environment we are seeing today," said Rohan Reddy, research analyst at Global X ETFs. "Global X is thrilled to bring DJIA as the sixth addition to its broader Covered Call suite, following a similar process to the Global X Nasdaq 100 Covered Call ETF (QYLD), Global X S&P 500 Covered Call ETF (XYLD), and Global X Russell 2000 Covered Call ETF (RYLD)."
With an expense ratio of 0.60%, DJIA brings an at-the-money (ATM) covered call strategy to the Dow Jones Industrial Average® (the "Reference Index") through the ETF structure. The fund gains exposure to equities in the Reference Index and writes a call option on the Reference Index. DJIA collects premiums from selling the call option in exchange for forfeiting the upside potential of the Reference Index.
About Global X ETFs
Global X ETFs was founded in 2008. For more than a decade, our mission has been empowering investors with unexplored and intelligent solutions. Our product lineup features 90 ETF strategies and over $40 billion in assets under management.iii While we are distinguished for our Thematic Growth, Income and International Access ETFs, we also offer Core, Commodity, and Alpha funds to suit a wide range of investment objectives. Explore our ETFs, research and insights, and more at www.globalxetfs.com.
Global X is a member of Mirae Asset Financial Group, a global leader in financial services, with more than $640 billion in assets under management worldwide.ivMirae Asset has an extensive global ETF platform ranging across the US, Brazil, Canada, Colombia, Europe, Hong Kong, India, Japan, Korea, and Vietnam with over $70bn in assets under management.v
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Investing involves risk, including the possible loss of principal. Diversification does not ensure a profit or guarantee against a loss.
Concentration in a particular industry or sector will subject the Funds to loss due to adverse occurrences that may affect that industry or sector. Investors in the Funds should be willing to accept a high degree of volatility in the price of the fund's shares and the possibility of significant losses.
The Fund engages in options trading. An option is a contract sold by one party to another that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed upon price within a certain period or on a specific date. A covered call option involves holding a long position in a particular asset, in this case U.S. common equities, and writing a call option on that same asset with the goal of realizing additional income from the option premium. By selling covered call options, the Funds limit their opportunity to profit from an increase in the price of the reference index above the exercise price, but continues to bear the risk of a decline in the index. A liquid market may not exist for options held by the fund. While the fund receives premiums for writing the call options, the price it realizes from the exercise of an option could be substantially below the index's current market price. DJIA is non-diversified.
Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.
Carefully consider the funds' investment objectives, risks, and charges and expenses. This and other information can be found in the funds' full or summary prospectuses, which may be obtained at globalxetfs.com. Please read the prospectus carefully before investing.
Global X Management Company LLC serves as an advisor to Global X Funds. The Funds are distributed by SEI Investments Distribution Co. (SIDCO), which is not affiliated with Global X Management Company LLC. Global X Funds are not sponsored, endorsed, issued, sold or promoted by Standard & Poor's Financial Services LLC ("S&P") nor does S&P make any representations regarding the advisability of investing in the Global X Funds. Neither SIDCO nor Global X is affiliated with S&P.
iSource: Global X, as of 2/17/22
ii Based on the correlation of the CBOE DJIA Volatility Index to the premiums measured by the CBOE DJIA BuyWrite Index (BXD) from 1/20/2006 to 2/18/2022 using data from the 3rd Friday of each month, when the options are written. BXD represents the performance of a theoretical portfolio that sells DJI call options against a portfolio of the stocks included in the Dow Jones Industrial Average. Premiums are a hypothetical measurement since it is an index. Past performance does not guarantee future results. Source: Morningstar Direct, CBOE Markets.
iii Source: Global X, as of 2/08/22
iv Mirae Asset, as of September 2021
vMirae Asset, as of 10/18/21
SOURCE Global X Management Company LLC
Markets Insider and Business Insider Editorial Teams were not involved in the creation of this post.
As an enthusiast with a deep understanding of exchange-traded funds (ETFs) and financial markets, I can confidently delve into the concepts discussed in the article about the launch of the Global X Dow 30 Covered Call ETF (DJIA). Let's break down the key points and terminologies used:
Global X ETFs: Global X ETFs is a New York-based provider of exchange-traded funds. Established in 2008, it offers a wide range of ETF strategies, including thematic growth, income, international access, core, commodity, and alpha funds. With over $40 billion in assets under management, Global X ETFs is known for its innovative approach to empowering investors with diverse investment solutions.
Covered Call Strategies: Covered call strategies involve holding a long position in a particular asset (in this case, U.S. common equities) while simultaneously writing call options on that same asset. The goal is to generate additional income from the premiums received by selling the call options. However, by engaging in covered calls, investors limit their potential upside if the price of the underlying asset increases beyond the exercise price of the call option.
Income Generation: Covered call strategies like the DJIA ETF aim to provide investors with higher income potential compared to traditional income strategies. This is achieved through the collection of premiums from selling call options, leveraging the positive correlation of volatility to premiums received.
Inflation and Rising Rates: Inflationary pressures and expectations of rising interest rates pose challenges for income investors. Traditional fixed income investments may be sensitive to changes in interest rates, leading to duration risk. Equities, including major broad market indices like the Dow Jones Industrial Average, may also face challenges amid rising rates. Covered call strategies are presented as an alternative for income investors seeking sources of yield that can potentially withstand inflation and rising rates.
Expense Ratio: The DJIA ETF has an expense ratio of 0.60%. Expense ratio refers to the annual fee charged by an ETF or mutual fund to cover operating expenses. It's important for investors to consider expense ratios as they directly impact the net returns of the investment.
Reference Index: The DJIA ETF gains exposure to equities in the Dow Jones Industrial Average (DJIA), a widely followed stock market index that represents 30 large publicly traded companies in the United States. The ETF writes call options on the DJIA to generate income.
By offering the DJIA Covered Call ETF, Global X ETFs expands its suite of covered call offerings, providing investors with an additional income-generating opportunity within the ETF structure.