Current Status of Target Covered Call ETFs and ACE High-Quality Corporate Bond ETFs
Target covered call ETFs are gaining traction among investors seeking stable cash flows post-retirement. However, research by Ronnie Israelov suggests that the high distribution rates of these ETFs may adversely affect long-term returns. Experiments with S&P500 index options indicate potential losses during stock price upswings. Consequently, investors should avoid ETFs with excessively high target distribution rates and make cautious selections. Swan Global Investments advocates for products with a 6-8% target distribution rate, highlighting the importance of an optimal distribution strategy.
Meanwhile, Korea Investment Management's ACE high-quality corporate bond (AA- or higher) active ETF has seen its net assets double in just two weeks post-listing. This ETF invests primarily in high-credit-quality corporate and medium-term financial bonds, earning a reputation for high stability and returns, making it a preferred choice for pension funds. Additionally, the U.S. Federal Open Market Committee's decision to lower interest rates has further boosted the appeal of medium-term corporate bonds, rendering this ETF an attractive option for investors.
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The Trap of Target Distribution Rate as Seen Through Tamidang & Comidang ‘Deal with the Devil’? [ETF High Distribution Rate Controversy] - Smart Today|Smart Today=Kim Na-yeon Reporter| There is a type of ETF popular among retirees aiming for steady cash flow post-retirement. It is the Target Covered Call ETF. This investment aims to distribute dividends according to a predetermined distribution rate each month. To fund these dividends, call options are sold.