REX Shares has launched a new ETF providing exposure to a portfolio of leading US artificial intelligence technology companies while simultaneously delivering income through an options strategy overlay.
Scott Acheychek, COO of REX Shares.
The REX AI Equity Premium Income ETF (AIPI US) has been listed on Nasdaq with an expense ratio of 0.65%.
The fund’s equity portfolio tracks the BITA Leaders Select Index, which targets US-listed stocks of companies in AI hardware, software, infrastructure, and services.
The index consists of companies with a high relative revenue exposure to the AI theme (“Pure Players”) as well as large, diversified firms that are considered direct enablers of AI technologies (“Key Enablers”).
Constituents classified as “Pure Players” are weighted based on their 12-month Average Daily Trading Volume, while “Key Enablers” are equally weighted. At each quarterly reconstitution and rebalancing, the composite weights of the Pure Players and Key Enablers are set at 40% and 60%, respectively.
Concurrently, to generate income, the ETF employs a covered call strategy, selling call options on the stocks within the index. This sale of call options brings in premiums from the option buyers, providing the fund with a level of income while also buffering somewhat against the inherent volatility of the technology sector. The downside of this approach is that the ETF will not participate fully in the potential upside of its equity portfolio.
The ETF sells slightly out-of-the-money call options, aiming to balance capital appreciation with income generation. The exact nature of these options depends on prevailing market conditions.
Scott Acheychek, COO of REX Shares, commented: “The AI revolution is transforming every industry and presents vast investment potential. This strategy leverages the growth potential of key AI stocks and delivers monthly income from companies that typically do not pay dividends, potentially serving as a downside hedge during market dips.
“AIPI exemplifies REX Shares’ commitment to innovating the covered call ETF landscape with specialized, options-based strategies that seek to address investor needs of potential NAV growth & income.”
AIPI marks REX’s second venture into covered call ETFs, following the October 2023 launch of the REX FANG & Equity Premium Innovation Index ETF (FEPI US) which has accumulated over $225 million in assets under management. This fund provides equally weighted exposure to a portfolio of leading US technology companies while simultaneously delivering income through a similar options strategy overlay.