QYLD, Covered call ETF for hedging - anything comparable in UK?

HCIMbtw

Was just looking into QYLD a NASDAQ covered call ETF today and was really interested in the potential of ETFs like this acting as part of a portfolio hedge in the eventuality that markets start going going the other way

I believe the only access to QYLD is through CFDs on some platforms available in the UK, haven't yet looked into the detail behind accounts and such you can hold/buy these in

But I was interested to know of any comparable strategies/funds people might use, with a covered call style structure, that were more widely available in standard ISA style investment platforms in the UK?

HCIMbtw

I found the following UBS fund that looks similar, was thinking it might be more accessible given it is European, but no luck finding it on any platforms for purchasing.. i'm a casual £1m short of being able to use UBS.. (SPXCC is its code)

UBS ETF (IE) US Equity Defensive Covered Call SF UCITS

Anybody know if it might be accessible on any ISA platforms, or where may be best to look? 

HCIMbtw

It would allow me to hold bigger US tech stocks that don't typically pay a dividend and earn the call premiums in the event of a bear market, offsetting losses..

And while it mitigates the benefit you get in a big bull market like we have atm, the returns in a flat and bull market are still solid, I just really like the idea of them, particularly when I can't face the hassle of trying to manage CCs myself.. they just seem like a decent hedge, and if possible within an ISA wrapper would be quite appealing to me

HCIMbtw

Deleted_User said:

Have you found out what this kind of investment would have done if you'd been holding it when tech stocks fell from c. 2000? "Hedge" is the last word I'd use to describe it.

 As you say, most of the return from the big tech stocks is in the form of capital appreciation, not dividends. So in what sense do you really hold them, if you're giving up a lot of the capital appreciation (and you don't even know exactly how much of it you're giving up)? You can hold dividend payers, or big US tech, but not both (I mean: obviously you can hold both, but as different parts of a portfolio).

Less importantly, the Irish ETF you mention seems to be synthetic.

Yes the irish one is synethetic, but also accumulates which is actually preferential for me

And when I say hedge, that is relative to being 100% invested in equities, which it does act as a hedge for (in terms of not losing value quite as dramatically). But I appreciate it isn't a hedge in the sense of bonds/gilts that would earn me sweet FA, my risk tolerance is V high, I don't mind volatility at all, just feel like a fund like this would provide a way to mitigate losses without limiting growth to badly.. and if the market stagnates, then it should outperform. Hence, i like the idea of them.. but getting access to US market CCs in the UK seems pretty tough.  

Alexland

Apparently the devil creates complex synthetic ETFs in his spare time and has found it helps that most people wouldn't believe it.

bostonerimus

If you want US tech stocks get a NASDAQ tracker, heck even a S&P500 tracker will get you the big tech companies. I have very little to say about CC as a hedge against market drops other than buyer beware.

HCIMbtw

Id rather hold money in my current account than Gilts..

There's no real buyer beware, other than I risk losing more money than a GILTS/Bond hedge in the event of a downturn.. but this way I get far better performance in a flat and upward trending market... wish these type of things were more easily accessible 

maxsteam

HCIMbtw said:

But I was interested to know of any comparable strategies/funds people might use, with a covered call style structure, that were more widely available in standard ISA style investment platforms in the UK?

There are restrictions on trading/holding derivatives in an ISA. Outside an ISA, many brokers will let investors write options if they hold the underlying equity.

There are quite a few funds that deal in covered calls and puts, some more successfully than others.
https://www.etf.com/channels/covered-calls

Btw, selling covered calls, as a strategy, in very general terms, will usually generate an above-average income if markets are stable, it will lose a similar amount to everyone else in a bear market and it will profit less than everyone else in a bull market. It's worth reading the basics as I am sure there will be people out there who see something they have not encountered before and believe that it's an easy way to make money. There are strategies that will make a profit at times other than in a bull market but there are no strategies that will always make a profit that is much above bank rates.
https://www.schwab.com/resource-center/insights/content/options-strategies-covered-calls-covered-puts

In the last 12 months, a NASDAQ tracker would have gained about 27% while the QYLD fund lost about 2% in dollar terms. It's not so appealing when viewed in performance terms. Indeed, QYLD has not made a profit over any of the periods (1D, 5D, 1M, etc) available on Google charts. It may sound good in theory and it may do better next year. imho, it's a fund for less volatile times.

tebbins

HCIMbtw said:

It would allow me to hold bigger US tech stocks that don't typically pay a dividend and earn the call premiums in the event of a bear market, offsetting losses..

And while it mitigates the benefit you get in a big bull market like we have atm, the returns in a flat and bull market are still solid, I just really like the idea of them, particularly when I can't face the hassle of trying to manage CCs myself.. they just seem like a decent hedge, and if possible within an ISA wrapper would be quite appealing to me

They may not pay a dividend but they are huge buybackers, the IT and comms sectors in the IS have a buyback yield of 2.1% and 2.34% respectively as of 30/6/21, comfortably above the S&P500s dividend yield of 1.48% at the time.
These stocks are propped up by these companies' abilities to borrow at record low rates, buybacks are more cyclical than dividends and correlated with lower corporate bond yields - just some food for thought if you believe inflation/interest rate rises are likely.

gbjbaanb

There some appearing such as BMO Enhanced Income UK (GB00BL63V512)

It only has a 6%ish yield, so nothing like the aggressive strategy used by QYLD and similar. but then, there are plenty of cover call ETFs that do not go as crazy as the crazy ones (such as NUSI or JEPI)