Parametric Equity Plus ETF (PEPS)

Overview

PEPS is a dynamically managed investment fund focusing on long-term capital growth by harnessing the potential of the U.S. large-cap equity market. The fund adopts a distinctive beta-neutral call overwriting strategy to achieve its investment goals. This involves a careful selection of stocks from the Solactive GBS United States 500 Index, a representative benchmark of top U.S. companies by market capitalization. PEPS employs a complex options strategy that aims to generate additional income and manage risk by selling call options on the S&P 500 Index. This method is designed to balance the fund's overall equity exposure, incorporating both direct equity investments and derivative instruments such as futures and FLEX Options linked to the S&P 500 Index and SPY ETF. The fund's performance heavily relies on its equity portfolio's success, moderated by strategic tax loss harvesting and compliance with specific regulatory requirements to optimize returns and minimize risks. By writing call options, PEPS may limit its potential for capturing the full upside of the equity market but seeks to counterbalance this through a carefully strategized laddering of call option positions.

Products and Services

• Equity Investments in Solactive GBS United States 500 Index Constituents

  PEPS's core investment strategy revolves around selecting high-potential stocks from the Solactive GBS United States 500 Index, which encompasses a broad spectrum of U.S. large-cap companies. The fund targets stocks that demonstrate strong performance and growth potential, aiming for long-term capital appreciation as part of its overall portfolio.

• Beta-Neutral Call Overwriting Strategy

  The fund implements a beta-neutral call overwriting strategy by selling short-dated, out-of-the-money call options on the S&P 500 Index. This approach serves to generate additional income and manage portfolio risk. Through a meticulous balancing act, the fund ensures its equity exposure is offset by the options sold, maintaining a neutral stance towards market volatility.

• Use of Derivatives: Futures and FLEX Options

  In addition to direct stock investments, PEPS leverages derivatives, specifically futures, and FLEX Options, that reference the S&P 500 Index and SPY ETF. This aspect of the fund's strategy enhances its flexibility in managing equity exposure and enables precise risk management, while also offering potential for additional income through strategic positioning in the derivatives market.

• Tax Loss Harvesting within the Equity Portfolio

  PEPS utilizes tax loss harvesting as a strategic tool within its equity portfolio. This method involves selling securities at a loss to offset capital gains taxes. The practice is designed to enhance the after-tax return of the fund, thereby maximizing investor value while maintaining compliance with investment regulations and minimizing overlap with the options' underlying constituents.

• Strategic Laddering of Call Option Positions

  To mitigate the risk of forgoing potential upside participation due to its call writing strategy, PEPS's sub-adviser strategically ladders the written call option positions. This approach aims to stagger the expiration and strike prices of the call options, potentially allowing the fund to capture some benefits from market upswings while still earning premiums from the options sold.