BlackRock is launching an exchange-traded fund that invests in U.S. stocks that pay dividends while also using an options-based strategy that aims to provide an additional source of income.
The BlackRock Advantage Large Cap Income ETF BALI will sell call options on the S&P 500 index for a second stream of monthly income beyond the dividend-paying stocks, according to Jay Jacobs, U.S. head of thematic and active equity ETFs at BlackRock. The new fund, which will begin trading on Thursday, will be managed by the firm’s systematic investment team, he said by phone.
The BlackRock Advantage Large Cap Income ETF may appeal to, say, a recent retiree who is looking for income as well as potential growth to keep pace with inflation, according to Jacobs. Investors in the actively managed ETF stand to receive two income streams from a single fund, with “the option premium” given to shareholders regardless of market movement, he said.
The U.S. stock market has been under pressure this month as Treasury bond yields have surged, but it’s still up for the year. The S&P 500’s 5.2% drop in September through Wednesday has pared gains for the index
SPX
so far in 2023 to 11.3%, according to FactSet data.
BlackRock, the world’s largest asset manager, has created other exchange-traded funds that use investing strategies involving options contracts. At the end of June, the firm launched its first “buffer” ETFs, funds designed to give investors some downside protection in the U.S. stock market as well as potential gains with a cap.
Read: BlackRock launches its first ‘buffer’ ETFs for stock-market investors worried about a potential fall
And last year, BlackRock launched bond ETFs that seek to give investors an additional stream of cash flow tied to the options market.
The new BlackRock Advantage Large Cap Income ETF is run by a team led by Raffaele Savi, global head of BlackRock systematic and co-chief investment officer and co-head of systematic active equity. Jacobs said the systematic investment team draws from “big data” to power their insights, using a large amount of data from across markets and beyond to inform their strategy.
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