KLIP ETF

KLIP offers high-yield and reduced volatility by employing a covered-call strategy on KWEB, making it attractive for income-seeking investors. The fund sacrifices significant upside potential for stability and regular income, underperforming KWEB, especially during bullish market periods. Despite high implied volatility, KLIP's performance has been lackluster, with a high expense ratio and returns partly financed by capital rather than profits.

China stocks soared on a number of new supportive policy announcements at the end of last month and beginning of October. However, ongoing policy announcements have failed to wow investors in recent weeks, leading to muted performance and increased volatility.

China equities present a wide range of exciting opportunities, but much of that excitement right now relies on government support. While the market offers significant potential, from electric vehicles to e-commerce, ongoing concerns about real estate debt have loomed over much of that positivity.

The KLIP ETF offers steady returns with low volatility by generating monthly call option income, ideal for income-focused investors in undervalued China tech stocks. The KWEB's low valuations and strong cash positions among Chinese tech companies should limit the potential for downside. KLIP's buywrite strategy has outperformed KWEB, providing high returns with less volatility, making it suitable for risk-averse investors.

Interested in China equities? You're not alone – many investors entered 2024 with a desire to increase allocations to China.

Covered call strategies have gained popularity for yield and downside protection, but may not be suitable for investing in China. Kraneshares China Internet And Covered Call Strategy ETF aims to provide exposure to the Chinese internet sector while reducing volatility. The KLIP ETF writes call options on the KraneShares CSI China Internet ETF to earn income and mitigate losses, but limits upside potential.

The KraneShares China Internet & Covered Call Strategy ETF employs a covered-call strategy to provide attractive yields and capped participation in the KWEB ETF. Despite its 61.7% headline yield, total returns for the fund has been far lower, due to poor performance from KWEB and the utilization of ROC. Overall, I continue to recommend investors avoid this amortizing fund, as the high yield is just a mirage.

Last year brought about a rise in covered call strategies as investors sought to maximize income potential in uncertain times. An area of opportunity often overlooked is covered call strategies on Chinese stocks.

The Kraneshares China Internet And Covered Call Strategy ETF has outperformed the KraneShares CSI China Internet ETF by 45% in its first year, thanks to option income. KLIP follows a covered call strategy, which has generated 68% annualized income returns since inception by selling slightly out-of-the-money call options on KWEB. With Chinese tech stocks looking undervalued and under-owned, a contrarian rally should allow the KLIP to generate outsized returns.