The Overlay Shares ETFs launched in 2019. These funds strive to boost the total returns of selected ETFs by overlaying options trading. These funds don’t pay large dividend yields, but the options overlay strategy does impact total returns.
Let’s look at the three Overlay Shares equity ETFs and some return results.
Overlay Shares Large Cap Equity ETF (OVL) owns the Vanguard S&P 500 ETF (VOO) as its primary asset, accounting for almost 100% of the portfolio. The options trades consist of being long index puts and short an equal number of index calls. Strike prices are 50 to 75 S&P 500 points apart.
Overlay Shares Small Cap Equity ETF (OVS) uses the iShares Core S&P Small-Cap ETF (IJR) as its primary portfolio holding. Interestingly, OVS holds the same options positions as does OVL.
Overlay Shares Foreign Equity ETF (OVF) has 80% of its portfolio in the iShares Core MSCI EAFE ETF (IEFA) and the other 20% in the iShares Core MSCI Emerging Markets ETF (IEMG). Again, the options trades are the same S&P 500 futures puts and calls used by OVL.
Returns from all three funds have been attractive. Here are a couple of charts with price returns on the upper panel and total returns on the lower panel. The first chart covers returns since these funds launched in September 2019:
And here are the fund returns for the last 12 months:
The charts verify my contention that investing in international stocks is not comparable to investing in U.S. stocks. On the top chart, you can see how large-cap stocks have surpassed small-caps over the last couple of years.
These funds are an attractive alternative for someone investing in the underlying, no-option overlay, ETFs.
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