Elevate Shares has debuted its ‘YieldMax’ line-up with the introduction of an ETF that delivers income-enhanced exposure to Ark Invest’s flagship disruptive technology fund.
The YieldMax Innovation Option Income Strategy ETF (OARK US) has been listed on NYSE Arca with an expense ratio of 0.99%.
The fund is actively managed and sub-advised by ZEGA Financial, an SEC-registered investment adviser and manager specializing in derivatives-based investing.
The ETF enacts a synthetic covered call strategy on the $7.5 billion ARK Innovation ETF (ARKK US). ARKK, which is actively managed by prominent stock picker Cathie Wood, ARK Invest’s founder, CEO, and CIO, invests in up to 50 US-listed equities, including American Depository Receipts, of companies exhibiting ‘disruptive innovation’.
ARK defines disruptive innovation as the introduction of technologically enabled new products and services that can potentially change the way the world works. Eligible sub-themes include areas such as DNA technologies, automation & robotics, energy storage, artificial intelligence, the future of the internet, and fintech innovation, among others.
A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from the option’s premium) than the asset would otherwise provide on its own from dividends or other distributions.
Historically, during bear markets, range-bound markets, and modest bull markets, covered call strategies have generally outperformed their underlying securities. However, during strong bull markets, when the underlying securities may frequently rise through their strike prices, covered call strategies historically have tended to lag.
While covered call strategies do limit upside participation, they can generate steady income during turbulent periods and diversify an investor’s sources of yield away from equities and bonds which historically have struggled during rising rate environments.
In terms of OARK, Zega utilizes a mix of long call and long put options on ARKK to approximate a 100% long exposure to the flagship technology fund. The firm then opportunistically sells one-month call options on ARKK with strike prices between 5% and 15% above ARKK’s current share price.
Jay Pestrichelli, co-Founder and CEO of ZEGA Financial, commented: “OARK provides investors with an innovative investment proposition: in exchange for limiting a portion of the monthly appreciation in ARKK, investors have the potential to receive a compelling monthly income. It’s an adoption of the time-honored covered call tactic that aims to harvest very attractive yields from assets that are not typically associated with income.”
Elevate Shares has currently filed to launch an additional four YieldMax ETFs which will deploy synthetic covered call strategies on the $7.2bn KraneShares CSI China Internet ETF (KWEB US), $12.8bn VanEck Gold Miners ETF (GDX US), $8.2bn SPDR S&P Biotech ETF (XBI US), and $28.5bn iShares 20+Year Treasury Bond ETF (TLT US).