The iShares Investment Grade Corporate Bond Buywrite Strategy ETF (BATS:LQDW) is a fund that offers a high yield of 14.67% with an expense ratio of 0.34%. This fund uses a covered call strategy based on the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD). By selling call options on LQD, the fund generates income, but it does not participate in market gains above the strike price. The fund may not write options when the premium income is minimal.
The portfolio of LQDW is heavily invested in LQD, with 99.6% of its value in LQD, and 1.5% in cash and equivalents. The top sectors in the portfolio are banks and consumer staples companies. The credit risk profile of the assets is rated A and BBB by S&P, and the maturity profile ranges from less than 10 years to over 20 years.
Since its inception, LQDW has not performed well in terms of total return, lagging behind LQD by 7% and losing 28% in share price. The fund has also experienced a decrease in monthly distributions, with a 45% loss in the average distribution per share in 18 months.
Comparing LQDW to other funds executing similar strategies in different bond categories, LQDW has the lowest fee and the highest yield. Despite this, the fund has not performed well compared to its peers in terms of total return.
Investors attracted to the high yield of LQDW should be aware of the capital and distribution decay that the fund has experienced in its short 2-year existence. Funds with yields above 6% often suffer from capital and distribution decay, which can be avoided or mitigated by using rotational strategies instead of holding funds long-term.
Overall, while the high yield of LQDW may be appealing to income-oriented investors, it is important to consider the historical performance and potential risks associated with the fund. Investors should carefully evaluate their investment goals and risk tolerance before investing in LQDW or similar high-yield funds.