Global X Russell 2000 Price, Forecast, Insider, Ratings, Fundamentals & Signals

In September last year, I issued a bearish piece on RYLD arguing that the ETF is structured in a way that inherently limits alpha potential. So far, the investment thesis has played out nicely. Yet, given the flight to value and struggling tech names, it might seem that RYLD's prospects have finally improved.

Russell 2000 implied volatility hits a two-month low, which means less in the way of option premium to be collected from selling upside calls. Small caps continue to struggle relative to large caps, but IWM's absolute chart shows signs of life, suggesting that owning IWM over RYLD today could make more sense. The Global X Russell 2000 Covered Call ETF has underperformed and may not be the best investment option right now given macro conditions, though seasonality is strong ahead.

Global X Russell 2000 Covered Call ETF implements a buy-write strategy in the small cap index Russell 2000. The RYLD ETF shows a 2-digit yield, but also a high variability in distributions and a large decay in share price. The covered call strategy was quite effective in 2022, but RYLD has underperformed at least 5 competitors since its inception.

Total Return is the actual rate of return for an investment over a given evaluation period, typically one, three, five, or ten years. The Total NAV Return is the sum of all dividends/distributions, assuming they are reinvested, plus the change in the NAV of the fund, be it positive or negative. However, managing our portfolio is not only about applying financial rules, because it is not certain that dividends can and will always be reinvested.

Royce Value Trust has outperformed Global X Russell 2000 Covered Call ETF since the article was written, with RVT up 21.07% and RYLD up 3.60%. RVT's outperformance can be attributed to picking the right stocks and a reduction in the discount to NAV. RYLD's poor performance is due to its mandate to sell covered calls, resulting in value destruction and potential losses in a volatile market.

Global X Russell 2000 Covered Call ETF sells monthly call options against RUT, an index of US small-cap stocks. RYLD's options strategy limits its upside exposure to the index, resulting in missed opportunities for investors. The return of capital dividends introduces tax implications that are advantageous for some investors, but individual tax situations may vary.

From a technical and tax view, covered call ETFs, such as RYLD, do not pay actual dividends but distribute capital back to investors. RYLD often attracts unsuitable investors looking for long-term income strategies, with some forgetting initial capital investments will eventually be lost without dividend reinvestment. Using RYLD as an income strategy is similar to an insurance provider using premiums as personal income, instead of saving for inevitable claims and settlements.

RYLD, a covered call writing fund, has performed poorly and has a sub 2% annual total return since inception. We explain why that has happened and why the odds of meeting the current yield without NAV depletion is virtually zero. We go over why RVT is a better choice for yield seekers.

In a quest for higher yields amid increased volatility in the stock market, investors are flocking to ETFs utilizing covered-call strategies, resulting in a notable uptick in fund inflows.

In a quest for higher yields amid increased volatility in the stock market, investors are flocking to ETFs utilizing covered-call strategies, resulting in a notable uptick in fund inflows.