I have spoken about buy-write or covered call funds on a number of occasions, perhaps most notably in One Approach for Volatile Sideways Markets.
One of my favorite funds in the covered call space is the S&P 500 Covered Call Fund (BEP), a closed-end fund that is the most actively traded of the covered call funds. BEP is currently trading at a 4.9% discount to net asset value and is an excellent way to capture some of the volatility premium in the current market without having to go to the trouble of establishing your own covered call portfolio. Looking at the chart below, while the SPX is down approximately 11% year to date, by writing covered calls against the SPX, BEP has managed a loss of only about 1.5% since the beginning of the year. Covered call funds will almost always outperform the SPX in down and sideways markets, but will generally have less upside potential in a bull market.
For a more detailed profile of BEP, follow the link to the Closed-End Fund Association’s (CEFA) web site or get an annual report and other information directly from the BEP splash page at IQ Investment Advisors.