The newest mutual fund from Cboe Vest Financial LLC, a majority owned subsidiary of Cboe Global Markets, Inc. (NASDAQ:CBOE), seeks to track the recently launched Cboe S&P 500 Dividend Aristocrats Target Income Index (SPAI), an index designed to track the hypothetical performance of a partial buy-write strategy applied to stocks contained in the widely utilized S&P 500 Dividend Aristocrats Index.
The Cboe Vest S&P 500® Dividend Aristocrats Target Income Fund (KNGIX) is designed with the goal of generating an annualized level of distributions, before fees and expenses, of approximately 3.5% over the annual dividend yield of the S&P 500 Index (the current income target of the Fund as of November 3, 2017 is approximately 5.5% before fees and expenses) while generating price returns proportional to the price returns of the S&P 500 Index.
Income investors have been challenged since the global financial crisis. Yields on fixed-income bonds are lower than most investment portfolio income targets and prices are likely to depreciate as rates rise,” said Steve Neamtz, President of Cboe Vest. “KNGIX was designed to address this income dilemma.
By combining premium income from the sale of options with the dividend income of the stocks, investors may increase their total distributions while still participating in the majority of the growth potential from price appreciation,” added Neamtz. “The key is starting with “Aristocrats” stocks and applying an innovative partial Weekly overwrite strategy developed by Cboe.
Index Highlights:
- The Index uses Cboe’s “Target Income Partial Overwrite Strategy” that seeks to add a level of targeted income to dividend grower stocks by trading some of their uncertain future growth opportunity for current income.
- The methodology involves repeatedly writing Weekly call options on a small portion of the stock holdings.
- By combining premiums collected from the sale of the options with the dividend income of the stocks, investors may increase their total income while still participating in the majority of the growth potential from price appreciation of the stock.
- The strategy varies the number of call options written, based on market conditions, with the goal of generating total income, before fees and expenses, from dividends and options premiums of approximately 3.5% over the dividend yield of the S&P 500 Index, over an annualized period.