Inside The Bedokian’s Portfolio: Global X Russell 2000 Covered Call ETF

Inside The Bedokian’s Portfolio is an intermittent series where I will reveal what we have in our investment portfolio, one company/bond/REIT/ETF at a time. In each post I will briefly give an overview of the counter, why I had selected it and what possibly lies ahead in its future.

For this post, I will be talking about the Global X Russell 2000 Covered Call ETF (RYLD), listed in the NYSEARCA. Technically speaking, this counter does not reside within our Bedokian Portfolio. As mentioned in this post, RYLD sits within our trading portfolio due to its derivatives nature (i.e., options).

 

If you want to know more about covered calls and their ETFs, you may want to read here.

 

Overview

 

Incepted on 18 Apr 2019, RYLD is a covered call ETF that writes call options on the components of the Russell 2000 index. As of 6 Apr 2023, 31.65% of the ETF is consisted of the Vanguard Russell 2000 ETF, and small portions (not more than 0.25% of holdings) of actual shares of companies found in the Russell 2000.

 

Why RYLD?

 

There are several covered call ETFs available out there, some of which included the famous QYLD that tracks the covered calls for the Nasdaq 100 and XYLD for the S&P 500. The reason why we selected RYLD was that small-cap companies tend to be more volatile than large-cap ones, and that is good for option premiums. 

 

Option premiums were usually correlated with a security’s implied volatility (IV), and that means the premiums (the main source of dividends from covered call ETFs) would rise if the IV is higher. Sitting pretty on the dividend yield front at 13.4% (as of 6 Apr 2023¹), it is one of the highest amongst the covered call ETFs.

 

What’s Next?

 

Covered call ETFs typically have one main weakness: limited upside. And if you looked at our disclosure below, the dividend yield of 13.4% (or 9.38% factoring the 30% withholding tax imposed on U.S. based securities) was very much offset by the capital loss (around 15.2% currently for us), but this does not mean that we would not continue to invest. On the contrary, we will nibble at RYLD more if it goes down further. We are planning to hold RYLD long term, collect more dividends and reinvest them on RYLD and/or other U.S. dollar denominated securities.

 

Disclosure

 

Bought RYLD at:

 

USD 23.60 at Mar 2022

USD 20.00 at Jun 2022

USD 21.19 at Aug 2022

USD 19.20 at Oct 2022

USD 19.195 at Feb 2023

USD 17.95 at Mar 2023

 

Disclaimer

 

Reference:

 

https://www.globalxetfs.com/funds/ryld/

 

1 – RYLD. Yahoo Finance (accessed 7 Apr 2023)