HYGW: Avoid This Amortizing ETF
- The iShares High Yield Corporate Bond Buywrite Strategy ETF writes covered calls on the HYG ETF to generate high distributions.
- The fund's strategy results in capped upside and uncapped downside, causing it to underperform the underlying HYG ETF over the long term.
- Given the monthly rolling of HYGW's covered calls and current low credit spreads, HYGW is likely to see capital losses as the economy weakens in the coming years.
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In recent years, we have seen a proliferation of 'derivative income funds' in financial markets. From plain vanilla funds like the JPMorgan Equity Premium Income ETF (JEPI) that write covered call options on the
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