The fund returns are generated via a small-cap covered-call strategy, and the index maintains a relatively high correlation, or relationship, with the Russell 2000 Index. However, the index on which this ETF is based is less volatile than the Russell 2000 Index.
For investors, RYLD may offer an alternative to pure Russell 2000 exposure in a well-diversified portfolio, but at lower volatility, says Marc Zabicki, president and chief investment officer of Bower Hill Capital Management.
"Consequently, the fund may be a good choice for those seeking to manage down overall portfolio risk while maintaining some allocation to smaller capitalization areas of the market," he says.
"For those not targeting exposure to small-capitalization stocks, there are other covered call ETF strategies from Global X and other ETF manufacturers based on larger capitalization S&P 500 and Nasdaq 100 listed companies," he says.
Like RYLD, such strategies provide returns streams somewhat similar as their underlying indices, but at typically a lower volatility.