Investors who have a taste for both monthly income and emerging markets have a new, unique, covered call exchange-traded fund (ETF) to size up.
On November 7, Global X ETFs launched The Global X MSCI Emerging Markets Covered Call ETF on the New York Stock Exchange under the ticker “EMCC.” This active invests in the iShares Core MSCI Emerging Markets ETF (IEMG) and then writes options that cover all of its notional holdings. In this way, the fund aims to generate income for holders via monthly distributions.
Emerging Edge?
This year has been a rough ride for emerging market (EM) equities. The MSCI Emerging Market index, a leading indicator for the segment, is currently down around one percent year-to-date.
While EMs face similar risks to their growth (interest rate changes, political instability, and climate vulnerabilities, to name a few), some countries are faring better than others. India and Brazil, for instance, have outperformed in 2023. Looking ahead, there is cause to be cautiously optimistic for EMs in the new year.
In its latest forecast, investment bank UBS predicts EMs will likely face challenges in early 2024 before gathering momentum and finishing the year with decent returns. It predicts EM fixed income will return 8-10 percent next year, while EM equities will deliver 6-8 percent with “most returns backloaded.”
Global X’s Director of Research Rohan Reddy sees “major headwinds such as central banks’ hawkishness have receded while tailwinds such as infrastructure investments have picked up.”
For Reddy, the takeaway is there is more upside ahead. He claims EMCC provides “access to a diverse set of geographies” that “offer potentially compelling yields.”
Cover Up
EMCC joins the ranks of Global X’s growing suite of covered call ETFs. Others include the Global X NASDAQ 100 Covered Call ETF (QYLD), the Global X S&P 500 Covered Call ETF (XYLD) July, and the Global X Dow 30 Covered Call & Growth ETF (DYLG). Each of these applies a similar options-based strategy for varying indexes.
Global X is hardly alone. Other asset managers have been busy firing off an array of covered call ETFs this year.
August saw the launch of the Madison Covered Call ETF (CVRD), a fund that targets undervalued mid- and large-cap firms and leverages covered calls in an effort to generate consistent dividend incomes.
Zega Financial, with its expansive suite of Yield Max funds that target big brand mega-caps, from Tesla to Disney and Apple to Coinbase, also uses a covered call strategy to generate monthly income for its holders. There are now 17 such ETFs under its banner.
“There has been growing demand for covered call ETFs in 2023,” said VettaFi’s Head of Research, Todd Rosenbluth. “This new ETF will provide enhanced income and help lower the volatility of investing in emerging markets.”
This unique EM play carries an expense ratio of 60 basis points.
This article was produced and syndicated by Wealth of Geeks.