Invesco looks at income portfolio strategies
CBOE Volatility IndexThe index, also known as Wall Street’s fear indicator, is experiencing its most volatile week since April.
For investors hesitant to ride out recent sharp swings, Invesco senior portfolio manager John Burello sees income funds using option-based strategies as a solid game plan. His reasoning: There’s more structural protection in them.
“Options are not based on the correlation of stocks with another asset class,” Burello told CNBC’s “ETF Edge” this week. “They can have a more reliable form of downside protection and also offer income that is not interest rate sensitive.”
Served by Burrello invesco‘s global asset allocation team suggests this should benefit investors due to the interest rate cut cycle. The consensus on Wall Street is that policymakers are expected to cut interest rates by a quarter point later this month.
“It’s becoming increasingly important to add revenue without relying on the Fed. I think that’s driving some growth in the space,” he said.
Invesco’s income funds include Invesco QQQ Income Advantage ETF, Invesco S&P 500 Equal Weight Income Advantage ETF and Invesco MSCI EAFE Income Advantage ETF.
So far this year, the Invesco MSCI EAFE Income Advantage ETF has gained about 14%, while the firm’s QQQ Income Advantage ETF has gained about 6%. It was also up nearly two percent last week.
Meanwhile, the Invesco S&P 500 Equal Weight Advantage ETF has been nearly flat for the year.
‘Never go out of fashion’
There is a “huge headwind” for options, according to Burello, and defined outcome strategies can last many years.
“Demand themes like defending against income and stock declines should never go out of style,” Burello said. “These are things that every portfolio will probably need at some point in someone’s life. They may want to reduce exposure to stocks. They may also want to add income, which is also a source of diversification that is not tied to interest rates.”
Burello sees options income space attracting many new product launches can make it difficult for investors to understand the differences.
His advice: Look for option income ETFs managed by institutional-level options professionals, be wary of unsustainable returns with potentially high fees.
