Asset management and technology licensing firm CBOE Vest has launched a new fund.
The CBOE Vest Defined Distribution Strategy Fund (VDDIX) aims to generate consistent monthly distributions of 5.25 percent annualized over the one-month Treasury yield which are not correlated to equity or bond markets.
VDDIX is CBOE Vest’s second mutual fund following the August launch of their S&P 500 Buffer Protect Strategy Fund.
“In the current low-interest-rate environment, the search for yield has pushed many investors to get involved in higher-yielding assets that may not be of the highest quality or long-duration bonds that may see negative price returns when interest rates rise,” senior managing director Steve Neamtz said. “We believe this fund will appeal to those investors who are reaching for consistent distributions but are struggling in this low-interest-rate environment.
“It is our sincere hope that VDDIX enables investors to sidestep duration or credit risk in a rising rate environment.”
Each month the fund’s defined distribution strategy (DDS) sets upper and lower bounds on the S&P 500’s performance over that calendar month. If the reference index price sits within the target range at month’s end, the DDS tries to not suffer from a principal loss. If the reference index falls outside the target range the DDS may decline in value.
To protect against loss, the fund collects a predetermined level of net premium income through the sale and purchase of options. The fund attempts to optimize the target range to collect premium income to meet its monthly distribution target while minimizing the chance of loss.
“(VDDIX) is a great way for investors to tap into predictable distributions uncorrelated to fixed-income markets and neutral to the equity markets’ performance,” Mr. Neamtz said. “This fund is well-positioned to weather the rising interest rate environment that many see on the horizon.”