BXMX: Covered Call Fund - A Superior Choice To XYLD

seekingalpha05-02

Nuveen S&P 500 Buy-Write Income Fund uses options to reduce volatility and increase income from its portfolio of global equities.The fund's top holdings are primarily large-cap stocks, with calls ...

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This closed end fund also sells calls on the S&P 500 index (SP500) in an effort to dampen some of the volatility that comes with holding equities. Besides shielding it from equity market gyrations, the option premiums also add some extra juice to the income earned by the fund. The end game of this fund, as noted on its website, is to earn \"attractive total return with less volatility than the S&P 500 index\". Of course, the flip side of removing exposure to volatility is that the capital appreciation is also capped by the option strikes that are chosen. As of March 31, BXMX held 249 securities, almost all of which were of the large capitalization variety. Unsurprisingly, the hierarchy of the industry sector allocation resembled that of the SP500. BXMX The fund's top 10 holdings made up around a third of the portfolio. The list included six of the magnificent seven (lately more like the maleficent seven), with the balance, while not considered as splendid, are equally well known. BXMX Calls were written on virtually the entire equity portfolio, and they are only slightly out of the money. On average, the options expired in a period of around two months. The above conclusions were drawn using the March 31 option overlay information available on the fund website. BXMX The weighted average days to expiration of close to 60 days is higher than what we have observed for this fund in the past. Earlier it was half as much, with the fund going out just a month at a time. This extended time frame is closer in line to our way of investing, but the fund still has a ways to go to match it. This closed end fund takes no leverage, and that is evident from the total investment exposure being the same as the total common assets. CEF Connect BXMX distributes 23.65 cents on a quarterly basis and using the last traded price of $12.72, the stock yields around 7.43%. This fund trades at a discount of close to 10%, making the distribution yield on its NAV ($14.45) comparatively lower at 6.55%. Speaking about its discount, the current one is the steepest by far in the last 3 years. CEF Connect The Z-scores in the above noted time frames is also a testament to the bargain this fund is in relation to its 3 and 6 month history. The market disdain is hard to explain when we see that BXMX has kept up or outperformed its peers (category-NAV) in most time frames. CEF Connect BXMX incurs annual expenses of around 0.91% for bringing this service to your trading platform. An Exchange Traded Peer The Global X S&P 500 Covered Call ETF (XYLD) provides a service not dissimilar to BXMX and has annual expenses of 0.60%. XYLD is a passive fund, and it pursues the investment results of the CBOE S&P 500 BuyWrite Index. As noted in the fund prospectus, the index is comprised of \"all the equity securities in the S&P 500 Index in substantially similar weight as the Reference index, and short call options on up to 100% of the S&P 500 Index\". The ETF uses a replication strategy in its pursuit of the index performance. Occasionally, it also falls back on the representative sampling strategy when the replication is too cost prohibitive or when an index component is illiquid or has other restrictions in place. Being an ETF, XYLD's data is fairly recent; however, one would be hard-pressed to find too much variation in the ETF's top holdings compared to those of BXMX from March 31. XYLD On the options front, the XYLD sells at the money calls, and these, just like BXMX, are sold on the entirety of the equity portfolio. The calls are monthlies and based on the last published numbers are going to be assigned at expiration later this month. XYLD XYLD distributes on a monthly basis and the amount is not fixed. Based on the last distribution of 34.04 cents and its market price of $39.91, this ETF yields its investors around 10.24%. Head-to-Head Performance XYLD has BXMX beat on the distribution yield and frequency front, since investors prefer monthly versus the quarterly payouts. The active management approach of BXMX, however, has outperformed the passive XYLD is almost all time frames. Over the last three years, BXMX has outperformed the latter by close to 6%. Data by YCharts And over 5 years the gap between the two is over trice that. Data by YCharts We are comparing the total return on NAV here, as ETFs [XYLD in this case] do not stray significantly from their NAV. A closed end fund, however, can trade at a discount or premium, as we have seen earlier in this piece. So for an apples to apples comparison, we stick with NAV as the barometer. Verdict Ok. So we have seen that BXMX has made its unit holders come out ahead on the total return on NAV front. How did XYLD do in terms of its benchmark? Well, there were brief periods over the last decade that it kept up with it, but not for any significant duration. Data by YCharts  We threw in BXMX in the above chart to show how it has shone (in the recent times) versus the ETF and its benchmark. The distributions should not be enough to sway the sentiment in XYLD's favor for an astute investor. But the key here is that BXMX is trading so wide of its NAV that you have an unusually great setup favoring BXMX over XYLD. What we can see happening here is BXMX continuing is outperformance of XYLD and investors getting the additional tailwind of discount to NAV closing over time. So for those holding XYLD, the message is clear. Sell XYLD, and Buy BXMX.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2432108647"}