ZEGA Financial has made a seat at the table for an oil major at its buzzing party of blue-chip covered call ETFs.
The YieldMax XOM Option Income Strategy ETF (XOMO) launched on the New York Stock Exchange Arca on August 30. With the aim of delivering monthly income to holders, XOMO will sell/write call options on Exxon Mobil stock. However, the fund does not invest directly in the energy giant.
XOMO joins ZEGA's growing suite of synthetic covered call strategy funds that have so far been focused on tech growth stocks. In July, it kickstarted with funds targeting Meta Google and Amazon, before last month adding on Coinbase, Netflix, Disney, and Microsoft.
The arrival of XOMO signals an expansion beyond Silicon Valley and tapping down into the underground depths of oil and gas.
Leveraged, wrapped funds like these are an attempt to merge the best of income and growth investing. ZEGA's one-stop shop offers investors shelves of stabilized mega-cap products to pop into their equity basket. Ideally, these funds will deliver solid and steady monthly income along with capped gains from the price performance of XOM. Yet there are risks involved. ZEGA does not guarantee dividend payouts, reminding investors that income distributions may differ significantly from month to month and will remain dependent on market conditions. Investors may see significant losses if the target stock's value declines.
There is a bulging appetite for defensive strategies as market participants remain weary of volatility. Despite the market's recovery this year, traders have flocked toward funds that offer income as well as price exposure. The booming demand for such solutions has pushed JPMorgan Equity Premium Income ETF (JEPI) to become the largest actively managed product in US markets.
Defensive plays offer traders shelter from ‘high pain, high gain' tech investing. Yet XOMO's arrival hints that, in the current market, even energy investors may be seeking extra cushioning for hard landings.
“While large-cap energy stocks often provide dividends, investors are often looking for downside protection,” commented VettaFi's director of research, Todd Rosenbluth. “This new fund can help.”
Big Oil, Big Gains?
Oil and gas giants like Exxon Mobil booked record profits off the back of the war in Ukraine last year.
While this geopolitically-powered boon has started to fade this year, earnings are still higher than in years gone by. Exxon Mobil's $8 billion in second-quarter profits was still higher than any pre-war quarter since September 2014.
The outlook for oil and gas remains hazy, however. The industry faces major pressures to accelerate its transition to renewable energy as civil society and governments push economies toward net zero carbon emissions by mid-century.
In sizing up XOMO, investors will consider the future of energy and whether or not this historic oil giant has a role to play in that future.
Exxon Mobil is currently trading at around $113, near an all-time high. XOMO is swapping hands at around the $20 mark. The fund, like all other actively managed YieldMax offerings, has an expense ratio of 99 basis points.