The ETF Show - Option & Muni Bond Income Strategies

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  • 05 mins 19 secs
Jay Pestrichelli, CEO of ZEGA Financial, discusses the launch of their two single-stock, option income strategy ETFs, TSLY and OARK. And Goldman Sachs Asset Management Portfolio Manager, Alexa Gordon, introduces the newly launched, tax free income strategy, GS Community Municipal Bond ETF (GMUN).
Channel: ETF

Jonathan Forsgren: Welcome to this edition of the ETF Show. I'm here with Alexa Gordon, portfolio manager with Goldman Sachs Asset Management. Alexa, thank you for joining us.

Alexa Gordon: Thank you so much for having me.

Jonathan Forsgren: What's the ETF we're talking about today?

Alexa Gordon: We're talking about the Goldman Sachs Community Municipal Bond ETF or GMUN, G-M-U-N.

Jonathan Forsgren: What is the strategy behind GMUN?

Alexa Gordon: The strategy is a passive strategy. We're focusing on the investment grade space, the one to 15 year part of the curve of the municipal index. What we're looking to do is build tax-free income for our investors as well as allocate capital towards community themes, including cities, states, local governments, water, sewer projects, healthcare, education, housing. Then third, we're really looking to be lower risk. A lot of the other passive alternatives out there tend to be longer duration, further out on the curve and sometimes lower credit quality. What we're looking to do is really take a conservative approach here by being shorter duration and overall in the investment grade space.

Jonathan Forsgren: Well, that brings me to my next question. Why is that especially relevant right now?

Alexa Gordon: It's really interesting to be launching this ETF in a higher rate environment when nominal yields are much higher. We're excited about the income earning above 3%, tax exempt in the municipal land, hasn't happened for the past 10 years, and we're really excited with the timing of the opportunity to bring this to market. In addition, we've really seen growth in the municipal space. Now, Muni ETFs are about 12% of the overall fund complex, and that's a huge growth is where it's been, and we really see this growing over time. We're excited about this timing for this launch.

Jonathan Forsgren: Who's the target investor for GMUN?

Alexa Gordon: The target investors typically are conservative clients who are looking for a diversified exposure to the municipal space, but want to stay relatively short on the curve and want to take relatively lower amount of credit risk. So, thinking about investors who are focused on principle preservation as well as those that do pay high taxes as the bonds we're selecting will be tax-exempt from a federal perspective.

Jonathan Forsgren: Well, Alexa, thank you for joining us today.

Alexa Gordon: Happy to be here. Thanks for having me.

Jonathan Forsgren: I'm here with Jay Pestrichelli, CEO of ZEGA Financial. Jay, thank you for joining us today.

Jay Pestrichelli: Great to be here. Thanks for having me.

Jonathan Forsgren: So, you just launched two ETFs. Can you tell us what the tickers, what's the name?

Jay Pestrichelli: Yeah, the first one we're celebrating today is the ticker TSLY, and the other one is OARK, and they are two of our yield max brands. They are actively managed strategies that look to harvest option volatility. So, we're calling them our Option Income Strategy ETFs.

Jonathan Forsgren: Can you dig a little bit more into the strategy of each?

Jay Pestrichelli: Sure, absolutely. Essentially this is a covered call strategy. We say it's a synthetic covered call, but essentially we all learned about covered calls when we learned about options 101. We're just taking it and putting it into an ETF wrapper where we're looking to kind of harvest all of the option volatility out of the option chain. And, the focus is on yield, hence the name Yield Max. It's what's most important for us.

Jonathan Forsgren: Why is now relevant? Why launch them now?

Jay Pestrichelli: Look, there are two things. These are single stock ETFs and so there's definitely been a push and a change in the environment where we now have a lot of single ticker ETFs. We're following along suit because it allows investors to really kind of focus in on exact exposure that they want to have. The other thing about yield, yield is very important right now. I don't want to overplay yield, but yield, yield, yield when we talk about these tickers. When you look at the volatility on these ETFs and the underlying tickers, we could produce something like a 40, 50, 60% yield. It's unheard of, but when you're actually trading options, you could actually generate that kind of a return.

Jonathan Forsgren: Who is your target investor for these funds?

Jay Pestrichelli: There's two really two, right? For aggressive investors having an underlying single stock ETF, like TSLA or ARKK. It's for people that are looking for yield. They have an appetite for yield, work it into a portfolio, work it into a small holding within a basket of ETFs, and you could really move the overall yield of your build-out. Or for aggressive investors that want to kind of reinvest their dividends, you could do pretty good compounding when you're kicking out 40, 50% a year.

Jonathan Forsgren: Well Jay, thank you very much for joining us today.

Jay Pestrichelli: Thank you for having me.

Jonathan Forsgren: For Asset TV, I'm Jonathan Forsgren. We'll see you next time.

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