Investors who are seeking bumper monthly yield from broad based market indices have a new exchange-traded fund (ETF) to consider.
On Monday, October 30, Defiance ETFs issued the Defiance R2000 Enhanced Options Income ETF (“IWMY”) on the New York Stock Exchange, Arca.
The actively managed put-write fund aims to help boost income with an allocation of Treasury bonds and daily Russell 2000 Index options based on the leading index of small-cap public companies. IMWY will pay any distributions on a monthly basis.
The fund will sell in-the-money puts every trading day to realize rapid time decay so as to deliver above-average monthly payouts for holders. Put options are often used as downside protection. Put options are “in the money” when the strike price exceeds the underlying security’s market price.
“IWMY has the potential to reshape the Russell 2000 options income strategies within the ETF landscape,” said Defiance ETFs CEO Sylvia Jablonski, adding the fund may offer “investors a new paradigm for income generation.”
“Advisors are increasingly comfortable with ETFs that incorporate options in a more efficient manner,” said Todd Rosenbluth, head of research at VettaFi.
IWMY is not the only income-focused active fund from Defiance. Both The S&P 500 Enhanced Options Income ETF (“JEPY”) and The Nasdaq 100 Enhanced Options Income ETF (“QQQY“) offer similar strategies but target the S&P 500 and the Nasdaq, respectively. JEPY has attracted over $50 million in assets under management (AUM) to date, while the QQQ has garnered over $130 million in AUM.
Russ Lookin’ Sus
The Russell 2000 Index has been underwhelming this year. In 2023, the AI-fuelled rally of the “Magnificent Seven” (Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia, and Tesla) represented virtually all appreciation in global equities. Their spurt has furthered American tech’s dominance, with the Seven representing almost 20 percent of all global equity value and US companies now accounting for 61 percent of global stocks, as opposed to less than 50 percent a decade ago.
Small caps have been left out of the action. The Russell 2000 Index is hovering around 1650 points, down now over 5 percent year-to-date. Small-cap performance hasn’t been so weak over a 100-week period been this bad since 2009.
The little guys are feeling the heat from Federal Reserve policy. With interest rates already at a fever pitch and the central bank pledging and the Fed’s plans to keep rates higher, their condition could deteriorate further. Consistently steep borrowing costs threaten the health of weaker balance sheets and, for some small companies, could prove fatal.
Investors curious about the IWMY fund will want to consider the outlook for small caps over the short to medium term and whether Defiance’s signature daily put options strategy could deliver the outsized monthly income it aims to deliver.
IWMY comes with an expense ratio of 0.99 percent.