Overlay Shares: The Icing on Your Index ETF Cake (Now for Everybody)
The new ETF ‘Ovals’ funds feature an overlay strategy that rides piggyback on an index ETF giving a dual stream of income.
Once the preserve of accredited investors and institutions, this suite of Overlay Shares ETFs is now available to the everyday investor. A capital-efficient overlay strategy combines with an underlying core index ETF to generate an additional, incremental, and tax-efficient income stream. However, this strategy does not require a change to the underlying investment portfolio.
Liquid Strategies, LLC
Liquid Strategies LLC focuses on managing liquid, absolute return portfolios with reduced volatility and low correlations to traditional assets. Additionally, these products provide a differentiated return from that of stocks and bonds without compromising on liquidity.
Moreover, the company delivers these solutions to both institutional and individual investors.
The Overlay Shares ETF suite and the five Ovals
The Overlay Shares ETF Suite comprises five very liquid indexes ETFs, each with an added overlay strategy (the five ‘Ovals’). The fund’s overlay strategy is to sell hedged options on the S&P 500 Index to generate additional tax-efficient income. This strategy, which has been successful since 2013, seeks to capitalize on chronically overpriced options.
The five Ovals are (Overlay Shares -)
- Large Cap Equity ETF
- Small Cap Equity ETF
- Foreign Equity ETF
- Core Bond ETF
- Municipal Bond ETF
“The ETF Ovals democratize an institutional-quality investment strategy completely free of account minimums, as well as cumbersome collateral maintenance, complicated client statements, and costly administration,” the firm said in a statement.
However, note that each Oval has an expense ratio of 0.75%.
Annualized return statistics of the Ovals for the period 11/01/2013 to 09/30/2019 show that in each case, the combined core ETF plus overlay strategy has outperformed the core index.
[Related Story: VALT, the ETF for Liquid Fixed Income Returns ]
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