Global X launches two US covered call ETFs

By Thomson Reuters May 8, 2024 | 3:41 PM

By Suzanne McGee

(Reuters) – Global X ETFs rolled out two new exchange-traded funds using options to generate additional income for investors, the firm said Wednesday.

The new offerings, the Global X MLP & Energy Infrastructure Covered Call ETF and the Global X S&P Quality Dividend Covered Call ETF, will write call options on positions they own in other Global X funds focused on midstream energy and dividend-paying stocks, respectively.

Covered call ETFs have become more popular in recent years. According to data from Morningstar Direct, net assets in the “derivative income” group now total $70.7 billion, up from $44.5 billion a year ago. The Global X launches bring the number of new products introduced this year to 11, compared to 10 in all of 2022 and 25 in 2023.

“In this fast-growing market, there’s a ton of white space for issuers to launch new products,” said Rohan Reddy, director of research at Global X. “There’s less fee competition.”

The new midstream energy covered call ETF will carry a fee of 0.60%; the dividend stock covered call fund will have a fee of 0.35%.

Global X manages 93 ETFs with total assets of $47 billion; covered call ETFs account for 16 of those funds but $11 billion of those assets.

Analysts have been watching the proliferation of covered call strategies with caution. In a report published last year, Morningstar analyst Katherine Lynch pointed out that the strategy means relinquishing upside potential in favor of income, a tradeoff that may not make sense in rising markets.

“Covered call ETFs are all the rage, but I don’t see the need or benefit from adding covered calls to narrow strategies,” said Bryan Armour, ETF strategist at Morningstar.

(Reporting by Suzanne McGee; Editing by Lisa Shumaker)