Back to top

Image: Bigstock

New BuyWrite ETF (BUYW) to Play Amid Market Volatility

Read MoreHide Full Article

After a good start to the third quarter, Wall Street has been on a volatile ride once again. With volatility being the catchword now in the broader equity market due to a hawkish Fed, global growth concerns and geopolitical tensions related to Russia and Ukraine, investors might be clueless about the future movement. There have been wild swings in Wall Street in the past few days.

Against such a backdrop, investors should focus on investments that offer protection against steep selloffs. In this pursuit, Main Management Fund Advisors has recently put out an ETF on BuyWrite concept. The name of the new fund is Main BuyWrite (BUYW).

Inside BUYW

The objective of the Main BuyWrite Fund is to offer greater risk-adjusted total returns relative to Morningstar Option Writing Category by investing in a portfolio of exchange traded funds (ETFs) selected through fundamental reversion to the mean analysis while utilizing a covered call writing (selling) strategy in an effort to dampen volatility (read: Invest in Quality ETFs to Fight Volatility).

Secured puts may also be written (sold) to potentially generate an additional source of portfolio return while providing equity exposure at pre-determined price targets, per the issuer. The expense ratio of the fund is 1.31%.

How Does It Fit In a Portfolio?

In a long-short investment strategy, the fund goes long stocks that are expected to outperform the market, while taking short positions in stocks that are likely to underperform. These strategies have the potential to outperform in both rising and falling markets. They also add diversification benefits to a portfolio and lower volatility due to low correlations with broader indexes.

U.S. stocks saw the biggest bloodbath in two years last week, following the hotter-than-expected inflation data. Almost same is the situation in other international markets as most developed economies have been experiencing hot sky-high inflation. Rising rate concerns are rife globally. And this concern is not likely to go away soon. Hence, equity market volatility is here to stay for some time. As a result, investors should consider alternative assets to protect their portfolios against volatility.

Any Competition?

The space is full with products.The AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL - Free Report) , The Leatherback Long/Short Alternative Yield ETF (LBAY - Free Report) , The First Trust Long/Short Equity ETF (FTLS - Free Report) are of the renowned products in the space.

However, the uniqueness of the new product is that BUYW invests in ETFs, not in stocks like aforementioned funds. Investing in ETFs gives even more safe exposure as basket approach minimizes the company-specific concentration risks.

As far as expense ratio is concerned, BUYW charges decently. Its peer BTAL’s expense ratio is quite high at 2.53%. LBAY’s expense ratio is 1.43% while FTLS charges 136 bps in fees. We expect, BUYW to amass decent assets thanks to its unique investment objective and decent expense ratio.