I'm a young Canadian investor (early twenties) thinking of adding a fairly stable/safe ETF to my portfolio. Since I'm already invested in riskier sector specific etf's such as healthcare and Tech, I was hoping to using this position to balance out my portfolio. I was considering adding a 7-8% yielding REIT or a high dividend ETF but since I am young I though an asset with a bit more growth is suitable. I came across a fairly new ETF by Cboe Vest (KNG), it seeks to track the S&P dividend aristocrats index while also providing income 3% higher than the S&P dividend yield. They achieve this by implementing a partial call option selling strategy. This causes the upside to be capped, but it still has at least 80% participation (89% as of May 2018). Even considering the fees (0.75% expense ratio) it seams like KNG has a greater likely-hood of outperforming other ETFs that track the S&P and even the index itself. If the index appreciated 8% and had a 2% yield (10% total return) wouldn't KNG appreciate 6.4% at the very least and achieve a yield of 5% (11.4% return)? Even considering that ETFs don't always track their underlying index perfectly, is it right to think that KNG only needs to capture 60% of the upside of the S&P to have similar returns? Or is this similar to the risks behind leveraged ETFs (from greater downside exposure, not Contago) in which your day to day losses get amplified and since your upside is capped, your long term returns could potentially be much lower. The fund itself states that it allows investors to participate in 90% of future growth, and that calls can only be sold on a maximum of 20% of stock holdings. I like the strategy behind the ETF and the potential returns, but what risks am I missing and how will the returns compare to similar ETFs and the index itself?
Submitted September 24, 2018 at 10:52PM by kinged https://ift.tt/2py6KZd
