Evolve Funds has launched two new ETFs on the Toronto Stock Exchange providing income-enhanced exposure to mainstream US and Canadian equity indices.
Raj Lala, President and CEO at Evolve Funds.
The Evolve S&P/TSX 60 Enhanced Yield Fund (ETSX CN) and Evolve S&P 500 Enhanced Yield Fund (ESPX CN) each come with a management fee of 0.45%.
ESTX and ESPX track the S&P/TSX 60 and S&P 500, respectively, while delivering enhanced yields and lowering overall volatility through actively managed covered call strategies on individual securities within these indices.
The S&P/TSX 60 and S&P 500 are bellwether references for large-cap equity performance in Canada and the US, respectively. Each index is weighted by float-adjusted market capitalization.
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 the option’s premium) than the asset would otherwise provide on its own from dividends or other distributions.
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.
In terms of the new ETFs’ strategy, the funds may enact covered call strategies on up to 33% of their total fund assets. The level of option writing may vary based on market volatility and other factors, while Evolve will utilize its proprietary stock market research to select individual securities for covered calls.
Raj Lala, President and CEO at Evolve ETFs, commented: “Last year, covered call strategies saw significant inflows into the Canadian marketplace. We expect that covered call funds will continue to attract attention this year as investors look for enhanced income, tax-efficient yield, and strategies that can help cushion some downside risk within their portfolios.
“ETSX and ESPX complement our existing suite of active covered call strategies and are the only Canadian ETFs tracking the S&P/TSX 60 and S&P 500 while writing calls on the underlying securities rather than the indices.”
ESPX regularly hedges its foreign currency exposure between the US dollar and Canadian dollar, while an unhedged version of the ETF is also available under the ticker ESPX.B CN.