Amplify ETFs has unveiled its latest ETF, a rules-based fund that invests in long-term US Treasuries while seeking to deliver consistently high levels of income through a covered call overlay.
Christian Magoon, CEO of Amplify ETFs.
The Amplify Bloomberg US Treasury Target High Income ETF (TLTP US) has been listed on Cboe BZX Exchange with an expense ratio of 0.38%.
A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from option premium) than the asset would otherwise provide on its own from dividends or other distributions.
Covered call strategies can play an important role in a portfolio, offering a diversified source of income while helping to potentially mitigate downside risk.
Historically, during bear markets, range-bound markets, and modest bull markets, covered call strategies have generally outperformed their underlying securities. However, during strong bull markets, when the underlying securities may frequently rise through their strike prices, covered call strategies historically have tended to lag.
The ETF is linked to the Bloomberg US Treasury 20+ Year 12% Premium Covered Call 2.0 Index which consists primarily of an allocation to the iShares 20+ Year Treasury Bond ETF, a passive fund targeting US Treasuries at the far end of the yield curve.
Additionally, the index then aims to deliver an annualized option premium income of 12% through writing weekly at-the-money call options on the underlying iShares ETF. TLTP further benefits from the potential for additional income from the US Treasury bonds held within its portfolio. Distributions are made from the ETF each month.
Christian Magoon, CEO of Amplify ETFs, commented: “Investors are increasingly seeking diversified income streams and portfolio stability. TLTP’s innovative use of a weekly covered call strategy in fixed income offers a multi-use solution for consistent high-income potential and a defensive position, making it a compelling option for a range of portfolio strategies.”