Concerned by U.S. Iran War Volatility? Add Income ETF Exposure

Ongoing hostilities following the U.S.-Israeli attack on Iran have had major ramifications for investors. The closure of the Strait of Hormuz has the potential to spark a global recession if it lasts too long. What’s more, the conflict has the further potential to spread or even trigger other conflicts, including the long rumored Chinese invasion of Taiwan. The U.S. Iran war, then, may invite investors to consider options to add durability to portfolios — like income ETF offerings.

See more: Get Private Equity Performance ETF Exposure in GTPE

Income ETFs add current income to portfolios, with the ETF space enabling significant new product innovation therein. Where historically investors have relied for the most part on fixed income ETFs to add income, and many still do successfully, more and more are looking to equity-based income ETFs to combine capital appreciation and current income. 

Often, that involves the use of calls and puts layered on top of equity allocations. Some funds make heavy use of FLEX options, while others combine those with other types of derivatives or even dividends. Together, the usage of tools like those have helped catapult income ETFs to new relevance. The U.S. Iran war could help lift them even further into relevance.

GPIX presents one example of an income ETF that can really help portfolios. GPIX, the Goldman Sachs S&P 500 Premium Income ETF, charges a 29 basis point fee to actively invest in income opportunities and capital appreciation. The fund, which will celebrate its three-year ETF anniversary this fall, applies a call strategy to the S&P 500, selling options on between 25% and 75% of its holdings therein.

Together, that has helped GPIX return 20.5% over the last 12 months, according to ETF Database data. That helped the fund outperform the ETF Database Large Cap Blend Equities Category average in that time. In terms of income, GPIX has provided an 8.11% 12 month trailing distribution rate as of February 28, per Goldman Sachs data. Looking ahead, as U.S. Iran war issues persist and potentially worsen, income ETFs like GPIX have appeal.

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