CBOE Vest today announced it has launched the CBOE Vest Defined Distribution Strategy Fund (VDDIX).
VDDIX seeks to generate consistent monthly distributions, non-correlated to equity or bond markets, of 5.25% annualized over the one-month Treasury yield, before fees and expenses, while preserving capital over the long term. VDDIX is the second mutual fund launched by CBOE Vest, following the August launch of the CBOE Vest S&P 500 Buffer Protect Strategy Fund (BUIGX).
“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,” said Steve Neamtz, Senior Managing Director at CBOE Vest Financial. “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.”
The Defined Distribution Strategy (“DDS”) employed by the fund begins every month by setting upper and lower bounds (“Target Range”) on the performance of the S&P 500 Index (“Reference Index”) over the calendar month. If the price of the Reference Index is within the Target Range at the end of the month, the DDS seeks to not suffer from a principal loss. If the Reference Index completes the month outside the Target Range, then DDS may decline in value. The strategy is implemented in the fund by selling and purchasing monthly options.
As compensation for the risk of loss from the DDS, the fund collects a predetermined level of net premium income from the sales and purchase of options. The fund seeks to optimize the Target Range to collect premium income to meet its monthly distribution target while minimizing the chance of losses.
“Target Outcome Investments focus on delivering returns designed around specific goals, rather than an arbitrary measure of risk or opportunity,” Neamtz continued. “VDDIX targets consistent monthly distributions and aims to take just enough risk to seek to achieve that goal. It’s a great way for investors to tap into predictable distributions uncorrelated to fixed-income markets and neutral to the equity markets’ performance. This fund is well-positioned to weather the rising interest-rate environment that many see on the horizon.”