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Why experts suggest retirement-age investors consider active ETFs

When trends collide: "active", "income" & "options"

Investors nearing retirement are looking for ways to earn stable income while still growing their assets long term.

“I think ‘income’ might be the word of the year for 2023, given the amount of flows that have gone to income products,” Strategas managing director Todd Sohn told CNBC’s “ETF Edge” this week. “You have a large cohort of investors who are approaching retirement, but they just want to keep getting that paycheck to pay off their monthly bills, whatever it may be. It’s a big shift.”

Sohn suggested that investor appetite for stable income products has grown in part because of this year’s narrow market leadership.

“You have five stocks, or 25% of the S&P 500, that is great for passive [investing], but if you’re a little concerned about those stocks coming in, you’re going to want to have a hand on the wheel,” he said.

That’s leading some experts to recommend actively managed strategies, which represent 23.3% of all flows into equity and income products this year, according to data from Strategas.

Brendan McCarthy, Goldman Sachs Asset Management’s managing director of exchange-traded funds, contends that active ETFs with an options overlay strategy can help investors achieve those stable returns.

“You can use derivative-type products that can generate income and provide a solution,” he said in the same interview.

McCarthy manages Goldman Sachs’ new active funds, Goldman Sachs S&P 500 Core Premium Income ETF (GPIX) and Goldman Sachs Nasdaq-100 Core Premium Income ETF (GPIQ). The ETFs use an options overwrite strategy to produce additional income beyond the broader indices’ returns.

The pair of funds launched on Oct. 26.

“We’re buying S&P and we’re buying Nasdaq [calls] for each respective fund,” said McCarthy. “We’re writing calls on those index ETFs in order to generate income.”

As of Friday’s market close, GPIX has gained 9.46% since its inception, while GPIQ is up 10.74%. 

The broader indexes on which the ETFs are based — the S&P 500 and Nasdaq 100 — are up 9.97% and 11.84%, respectively, during the same period.

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