AdvisorShares, the Bethesda, Maryland-based issuer best known for its actively managed strategies has announced the latest addition to its products portfolio, the Star Global Buy-Write ETF (VEGA), marking the firm’s the sixteenth fund launch.
VEGA is the first product into the buy-write segment from AdvisorShares that buys global ETFs and sells covered calls against them with an aim to generate extra income.
The ETF uses a strategy called as “Volatility Enhanced Global Appreciation” or VEGA to provide investors with repeatable and consistent returns across all market conditions. The buy-write strategy involves collecting premium on ETFs or stocks in the portfolio by selling ‘calls’ and lowers volatility levels while simultaneously generating income for investors. Selling a ‘call’ gives the buyer the right to buy, or ‘call’ the security at a pre-decided strike price until the contract expires at a given future date.
‘Call’ options expire worthless if the underlying security doesn’t reach the strike price and the fund gets to keep the premium. On the other hand, if prices of the underlying security fall, losses are cushioned by the premiums collected, thus reducing volatility and trimming down dependence on markets for returns during downturns.
Also VEGA’s style can offer uncorrelated returns amid an increasingly uncertain global marketplace, serving up lower beta and positive alpha. Additionally, the fund will use ‘protective puts’ when volatility is low to manage downside risks. A put option acts as insurance in a bear market and rises when the price of the underlying asset falls.
VEGA had 54 percent of assets in cash upon launch on Tuesday while the remaining was divided equally among four ETFs including SPDR S&P 500 ETF (SPY), Energy Sector SPDR ETF (XLE), the iShares Dow Jones US Real Estate ETF and iShares MSCI Emerging Markets Index ETF (EEM). The fund plans to focus on ETFs tracking basic and precious metals, bonds and agribusinesses.
The fund has a net expense ratio of 2.01 percent and is advised by Partnervest Advisory Services of Santa Barbara, California.
It’s a brand new ETF, and I will need to see some historical performance along with higher volume first before issuing a definite opinion. The idea is not a new one, but time will tell how this approach stacks up when it meets severe market volatility.
Disclosure: No holdings