FEPI by Rex Shares: Redefining Income & Growth in ETFs
Among 2023’s ETF launches, REX Shares’ FEPI ETF (‘REX Fang & Innovation Equity Premium Income’) stands out as a key player. This innovative ETF is poised to potentially redefine income generation in the ETF market. FEPI aims to deliver enhanced monthly income while still providing potential NAV appreciation by focusing on a concentrated portfolio of the leading U.S. technology companies. Its innovation lies in producing repeatable income built around the individual stock holdings through out-of-the-money call writing.
Transforming Equity Investing for Yield
Traditional equity investing for yield often limits portfolio selection to high-dividend stocks, restricting investment in sectors or companies poised for long-term growth or technological breakthroughs. FEPI seeks to resolves this yield-vs-growth conflict, with its objective to introduce meaningful, repeatable, and measured yield to portfolios typically low in dividends. By selling out of the money call options on individual stocks in the FANG & Innovation index, investors can pursue monthly income objectives and capitalize on capital growth potential simultaneously. In the FEPI portfolio, the monthly income generated from each stock depends on the demand for short-dated call options and, crucially, the implied volatility of each stock. This individualized approach contrasts with other funds that typically employ a single call option across their entire portfolio, often missing out on the nuanced market and tactical opportunities that stock-by-stock income generation presents.
Exploring the FEPI Basics
FEPI selects an equally weighted concentrated portfolio from the leading innovative big technology companies. With regular rebalancing and call option rolling, FEPI aims to participate in the long-term appreciation of sector-leading companies while providing near-term income generation.
FEPI’s investment strategy focuses on leveraging the leading technology firms within the FANG & Innovation Index. This index comprises Facebook, Amazon, Netflix, and Google, along with other innovative technology companies that are at the forefront of digital transformation and market trends (full link to fund holdings can be found here). By adopting an equally weighted approach towards these giants, FEPI ensures a balanced and strategic exposure to the tech sector.
To enhance income generation, FEPI employs a unique strategy to maximize returns through the sale of out-of-the-money call options on each of the big tech stocks it holds, leveraging the inherent volatility within each of the stocks seeking to generate income. By selling these call options, FEPI effectively commits to selling the stock at a future set price, in exchange for receiving an upfront premium. This premium acts as an additional income stream, enhancing the overall yield of the portfolio. However, it’s important to note that while this strategy harnesses volatility for income, it also caps the potential stock gains, as the investor is obliged to sell the stock if it exceeds the strike price of the call option.
Another benefit of FEPI’s covered call strategy is that it has the potential to cushion the portfolio from major market volatility. When markets fall, the income generated from selling call options can offset some of the capital losses, providing a buffer to the portfolio’s value. The income produced by the fund can also increase significantly when the volatility spikes in each of the constituents in the fund. By carefully selecting the strike prices and expiration dates of the call options, FEPI aims to balance the trade-off between income generation and downside risk, striving to deliver a more stable return profile in the face of market volatility.
Conclusion
FEPI is a distinct strategy compared to other covered call ETFs and provides a forward-thinking approach to blending monthly income with growth by harnessing the volatility within the tech sector. This ETF leverages the strength of leading technology firms, employs strategic call writing for income enhancement, and offers a buffer against market downswings, making it a standout choice for investors aiming to balance income and growth. If FEPI’s approach aligns with your financial goals, we encourage you to reach out to a REX Shares sales team member. Schedule your meeting here
Important Information
Investing in the Fund involves a high degree of risk. As with any investment, there is a risk that you could lose all or a portion of your investment in the Fund.
Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus. Please read the prospectuses carefully before you invest. Investments involve risk. Principal loss is possible. For FEPI prospectuses, click here.
THE FUND, TRUST, ADVISER, AND SUB-ADVISER ARE NOT AFFILIATED WITH THE FUND’S UNDERLYING SECURITIES.
The Fund’s investment exposure is concentrated in the same industries as that assigned to the underlying securities. Some or all of these risks may adversely affect the Fund’s net asset value (“NAV”) per share, trading price, yield, total return, and/or ability to meet its investment objective.
The value of the Fund, which focuses on underlying securities in the technology sector, may be more volatile than a more diversified pooled investment or the market as a whole and may perform differently from the value of a more diversified pooled investment or the market as a whole.
Sector Concentration Risk. The trading prices of the Fund’s underlying securities may be highly volatile and could continue to be subject to wide fluctuations in response to various factors. The stock market in general, and the market for technology companies in particular, where applicable, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.
Liquidity Risk. Some securities held by the Fund, including options contracts, may be difficult to sell or be illiquid, particularly during times of market turmoil.
Derivatives Risk. Derivatives are financial instruments that derive value from the underlying reference asset or assets, such as stocks, bonds, or funds (including ETFs), interest rates or indexes. The Fund’s investments in derivatives may pose risks in addition to, and greater than, those associated with directly investing in securities or other ordinary investments, including risk related to the market, imperfect correlation with underlying investments or the Fund’s other portfolio holdings, higher price volatility, lack of availability, counterparty risk, liquidity, valuation and legal restrictions.
Call Writing Strategy Risk. The path dependency (i.e., the continued use) of the Fund’s call writing strategy will impact the extent that the Fund participates in the positive price returns of the underlying reference securities and, in turn, the Fund’s returns, both during the term of the sold call options and over longer time period.
High Portfolio Turnover Risk. The Fund may actively and frequently trade all or a significant portion of the Fund’s holdings. A high portfolio turnover rate increases transaction costs, which may increase the Fund’s expenses.
New Fund Risk. The Fund is a recently organized management investment company with no operating history. As a result, prospective investors do not have a track record or history on which to base their investment decisions.
Non-Diversification Risk. Because the Fund is non-diversified, it may invest a greater percentage of its assets in the securities of a single issuer or a smaller number of issuers than if it was a diversified fund.
Options Contracts. The use of options contracts involves investment strategies and risks different from those associated with ordinary portfolio securities transactions. The prices of options are volatile and are influenced by, among other things, actual and anticipated changes in the value of the underlying instrument, including the anticipated volatility, which are affected by fiscal and monetary policies and by national and international political, changes in the actual or implied volatility of the underlying reference security, the time remaining until the expiration of the option contract and economic events. For the Fund in particular, the value of the options contracts in which it invests are substantially influenced by the value of the underlying securities.
Money Market Securities Risk. The Fund may invest in money market securities, which are short-term, highly rated fixed income securities. Although money market securities typically carry lower risk than equity securities, return of principal and interest may not be guaranteed.
Index: The Solactive® FANG Innovation Index includes 15 highly liquid stocks focused on technology. These large, tech-enabled equity securities are all listed and domiciled in the U.S. The Index is comprised of eight core-components Apple (AAPL), Amazon (AMZN), Meta Platforms (META), Alphabet (GOOGL), Microsoft (MSFT), Netflix (NFLX), NVIDIA (NVDA), Tesla (TSLA) AND the seven top traded names across the technology sector. it is not possible to invest directly in an index
Out of the Money Option: An out of the money call option has a strike price that is higher than the price of the underlying asset.:
Call Option: Call options are financial contracts that give the buyer the right—but not the obligation—to buy a stock, bond, commodity, or other asset or instrument at a specified price within a specific period.
Funds distributed by: Foreside Fund Services, LLC, not affiliated with Rex Shares, LLC, or its affiliates.