Trusted Covered-Call Income Producer

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

Even in market areas that are underperforming, there always are some stocks and funds that hold up better than the rest, demonstrating remarkable relative strength. U.S. dividend and income equity exchange-traded funds (ETFs) generally were hurt badly during the first half of 2015, but there still have been some relative stars in the category.

One of these funds is First Trust Low Beta Income ETF (FTLB), the second-best-performing fund of this type in the year’s first six months.

View the current price, volume, performance and top 10 holdings of FTLB at ETFU.com.

This fund differs from ones investors typically would expect to find under the “income-based” categorization. Unlike many other dividend funds, FTLB does not focus on stocks that pay dividends. Instead, it buys large-cap, big-name stocks like Apple and General Electric, some of which pay dividends and some of which do not. Then it executes its “options strategy,” selling covered calls on its positions to generate income for its shareholders by collecting premium payments for its selling the options.

This strategy seems to have paid off, relatively speaking, given the largely stagnant markets during the first half of the year. This fund was able to return 0.69% while also yielding 3.51%, which in some ways could make it a better performer during the period than the category’s No. 1-ranked fund, DGRS.

FTLB is tiny, with only $4 million in assets managed. As this fund has less than $100 million in assets, it falls beneath my recommended threshold for investment. However, this fund’s strategy is one that is worth bringing to your attention. The more knowledge you have as an investor, the better you can make informed decisions.

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This fund bucked the trend and actually gained value in Q2, a time when many of its peers experienced setbacks.

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In addition, 23.52% of this fund’s assets are invested in its top 10 holdings. Among them are Apple Inc. (AAPL), 4.12%; Verizon Communications Inc. (VZ), 2.59%; General Electric Co. (GE), 2.45%; Wal-Mart Stores Inc. (WMT), 2.36%; and Exxon Mobil Corp. (XOM), 2.32%.

If you are interested in seeking income using a covered-call strategy, First Trust Low Beta Income ETF (FTLB) represents a way to accomplish this without having to write the calls yourself, and the fund boasts a solid track record.

Remember to look for the current price, volume, performance and top 10 holdings of FTLB at ETFU.com.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

In case you missed it, I encourage you to read my e-letter column from last week about a U.S. dividend fund. I also invite you to comment in the space provided below.

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Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

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