ETFs for Added Income and Downside Protection

ETF Trends

Last weekend, I attended the “Invest Like A Monster” conference hosted by Options Monster in San Francisco. Some of the biggest and brightest names in the trading business were including, John and Pete Najarian, Guy Adami, Jeff Macke and Howard Lindzon of StockTwits. 

While at the conference, I had the privilege of moderating a panel on some new and exciting concepts in the exchange traded funds universe, including funds that offer unique avenues for downside protection and a couple that boost income through the use of covered calls.

Joining me on the panel were Joseph Cunningham of Horizons ETFs, Grayson Lipton of PowerShares and Kevin Rich.

Rich discussed the U.S. Equity High Volatility Put Write Index Fund (HVPW) which his firm sub-advises for ALPS Advisers. HVPW is an ETF play on one of the more frequently used options strategies: Selling puts to generate income.

HVPW tracks the NYSE Arca U.S. Equity High Volatility Put Write Index that, as Rich noted, “creates its income by selling two-month 15% out-of-the money put options on a selection of 20 diversified stocks that have the highest implied volatility.”

Rich also said that HVPW can help reduce portfolio volatility “despite the fact that HVPW sells put options on some of the highest volatility stocks, because it sells options on a diversified selection of 20 large-capitalization stocks with strike prices that are 15% out of the money, HVPW experiences lower volatility than the broad market.” [Income ETF Turns High Volatility Into Low Volatility]

Through the end of the third quarter, HVPW sported a year-to-date gain of almost 8.2%. The ETF has a 1.5% yield target for every two months, with a 12-month dividend target of 9%. Rich said, “HVPW should perform well in upward-trending and sideways-trading markets, and may perform better than the broad market equity funds in downward-trending markets because of the downside protection it provides.”

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