A Covered Call ETF With Solid Risk-Adjusted Total Returns
High Yield Spotlight Of The Week
Every week, we’ll profile a high yield investment fund that typically offers an annualized distribution of 6-10% or more. With the S&P 500 yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.
2023 has been a great year for U.S. stocks. The S&P 500 is up around 17% and, perhaps better yet, there have been very few bouts of volatility to deal with. Absent the banking “crisis” earlier this year, the VIX has spent almost no time above the 20 level. In other words, I fear that investors are getting complacent again and a little too used to big double-digit returns with little downside risk. That’s probably going to change at some point over the next 6-12 months as credit conditions deteriorate and recessionary conditions accelerate all around the world (not to mention the potential of a credit event). The question would be how to approach investing in equities without going full throttle.
Covered call funds tend to be popular options. The strategy, depending on how it’s executed, can eliminate a lot of share price upside potential, but if the high yield can offset the lagging share price, the tradeoff can be worth it. The Nuveen Core Equity Alpha Fund (JCE) tries to bridge the gap between capital growth and high yield by using a quantitative approach to select the best equities for its strategy. The question is whether it’s unique enough to make it worth it.
Fund Background
JCE's investment objective is to provide an attractive level of total return, primarily through long term capital appreciation and secondarily through income and gains. It invests in large capitalization U.S. common stocks, using a proprietary quantitative process designed to provide the potential for long-term outperformance. JCE also sells call options with a notional value of up to 50% of the fund's equity portfolio in seeking to enhance risk-adjusted performance relative to an all equity portfolio. It does not use leverage.
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