Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
The CBOE Volatility Indexaka Wall Street’s fear gauge, is coming off its most volatile week since April.
For investors hesitant to ride the recent headwinds, Invesco senior portfolio manager John Burrello sees income funds that use option-based strategies as a good game plan. His reasoning: They have more structural protection built into them.
“Options do not depend on stock correlations with another … asset class,” Burrello told CNBC “ETF Edge” this week. “They can have a more reliable form of downside protection and can also offer income that is not sensitive to the interest rate.”
Burello, who served on I investthe global asset allocation team suggests this should serve as an advantage for investors due to the rate cut cycle. Policymakers are expected to cut rates by a quarter point later this month, according to the Wall Street consensus.
“Adding revenue without reliance on the Federal Reserve is becoming increasingly important. I think that’s driving some growth in the space,” he noted.
Invesco’s income generated funds include Invesco QQQ Income Advantage ETF, Invesco S&P 500 Equal Weight Income Advantage ETF and on Invesco MSCI EAFE Income Advantage ETF.
So far this year, the Invesco MSCI EAFE Income Advantage ETF has gained about 14%, while the firm’s QQQ Income Advantage ETF is up about 6%. They are also up about two percent in the past week.
Meanwhile, the Invesco S&P 500 Equal Weight Advantage ETF is almost flat for the year.
“Never Go Out of Style”
According to Burello, there is a “very large tailwind” for options and defined-outcome strategies can last for many years.
“The themes of seeking income and protecting against capital absorption should never go out of style,” Burrello said. “These are things that any portfolio probably needs at some point in someone’s life. They may want to de-risk stocks. They may also want to add income that is a diversifying source and, again, not reliant on interest rates.”
Burrello finds that the options monetization space has attracted many new product launches can make it challenging for investors to understand the differences.
His advice: Look for option-income ETFs managed by institutional-grade options professionals, beware of unsustainable gains with potentially high fees.
