Alabama-based Aptus Capital Advisors is listing an actively managed ETF that straps a collar around dividend paying stocks.

The Aptus Collared Income Opportunity ETF (ACIO) uses a house model to pick 30 US large cap stocks that pay reliable dividends and have a solid options market behind them. It then sells call options and uses the proceeds to buy puts on the 30 stocks in the portfolio.

The fund charges 0.79%, which is bang in line with the rest of Aptus’ ETFs.

TickerFund NameAUM ($M)InceptionTER
DRSKAptus Defined Risk ETF$11620180.78%
FTVAAptus Fortified Value ETF$7720170.79%
BEMOAptus Behavioral Momentum ETF$7220160.79%

Analysis – just buy less equity

ACIO’s strategy is to boost income while dampening volatility. Which should endear it to retirees who want their capital preserved and also want regular income.

Attractive-sounding though a collar may be, they are known for underperforming. This tends to be because the costs of buying puts exceeds the gains from selling calls. (As investors are risk-averse, put options tend to be more expensive than calls. Those that buy put options end up, in effect, paying out an equity and volatility risk premium).

For those interested, Roni Israelov, a quant at AQR, has made a modest career for himself exposing the folly of equity collars. He suggests that investors attracted to collars – i.e. the risk-averse – simply buy less equity.

For ACIO, the likely lesson in all this is that the fund will probably fail to gather assets. Best evidence for this is found in the First Trust Hedged BuyWrite Income ETF (FTLB), which runs a very similar investment strategy. Despite listing back in 2014, FTLB has gathered a mere $9 million in assets while providing a 5% annualised average return.