BlackRock Debuts 2 Covered Call ETFs
BlackRock Inc. unveiled two new ETFs on Friday that use covered call strategies, tapping into investor demand for options-based funds while slashing fees to undercut competitors.
The iShares S&P 500 BuyWrite ETF (IVVW) and the iShares Russell 2000 BuyWrite ETF (IWMW) both give investors income by selling monthly call options on their underlying equity indices, which are the S&P 500 and Russell 2000, respectively. Investors will receive quarterly dividends distributions in addition to the monthly distribution of call options premiums, according to the firm’s press release.
While the two funds are not introducing a new strategy, they are slashing fees to new lows on one of the most popular investing trends of the past year. IVVW has an expense ratio of 0.25%, while the IWMW fund has a fee of 0.39%.
IVVW is now the cheapest ETF in the derivative income category, according to Morningstar ETF analyst Bryan Armour. He explained the low fees show that ETF expense ratio competition continues to work in investors favor.
“For index-based covered call strategies, these new [funds] are an easy win,” Armour said.
The fee cut wars in the ETF industry are notoriously brutal, as huge asset management behemoths such as BlackRock, which has $2.7 trillion in 408 ETFs, have the scale and resources to slash expense ratios to razor thin margins on popular strategies.
“The old saying is you want to be successful, but not so successful that you attract BlackRock,” Armour said. “So, I guess this has [proven] covered call strategies have grown sufficiently big to force iShares to undercut everyone on fees.”
JEPI’s Options Dominance
Covered call strategies have grown in popularity as investors seek higher yields. “I think investors were interested in some of the hedging aspect of covered calls, especially when markets were in decline in 2022, and for whatever reason that's continued to carry over,” explained Armour.
BlackRock pointed to macroeconomic conditions as a boon for the income strategy. “Income remains top of mind as investors move out of cash and prepare for a shift in monetary policy,” said Rachel Aguirre, head of U.S. iShares product at BlackRock.
The most popular fixed income options ETF is the $33 billion JPMorgan Equity Premium Income ETF (JEPI), which is an actively managed covered call strategy on the S&P 500. The fund brought in a staggering $12 billion in 2023 alone, according to etf.com data.
Contact Lucy Brewster at lucy.brewster@etf.com.
