Purpose Investments markets covered put strategy in Canada

Canada-based investment firm Purpose Investments is pitching among Canadian retail investors the Purpose Premium Yield Fund, an options-based strategy based on opportunistic cash covered puts aimed at having 90% of the fund's exposure into cash covered puts. The fund has been listed in the Toronto Stock Exchange (TSX) and complements the firm's fourteen exchange traded funds (ETFs) and five closed-end funds trading on the TSX, which have a market capitalization of $841m and $149m, respectively.

"The goal of this new fund is to provide an alternative source of high income with lower sensitivity to interest rate and credit risk than traditional fixed income strategies," said Vlad Tasevski (pictured), vice president, head of product and corporate development, Purpose Investments. "Given the low interest rate environment it is getting more and more challenging to find good sources of income."

The new fund aims to pay returns as a steady stream of tax-efficient high distributions of 7% per annum, which are expected to be characterized as capital gains and dividends. "With the Premium Yield Fund we wanted to take the main principles of our quant based investing model to employ safe screens which we use to pick our long names," said Tasevski. "The fund is an options-based strategy, so it is mainly focused on doing cash covered puts and to a lesser extend covered calls."

An earlier example of a quant strategy launched by Purpose two years ago is a long short equity fund, which is based on quality and value to select long portfolio stocks. The portfolio holds 70 US stocks and is rebalanced monthly. Equity hedging is then overlaid by shorting S&P 500 index futures. The short hedge is always a minimum of 15% and can go as high as 65%, which is a range based on Purposes' proprietary rules, according to Tasevski. During down-trending markets the hedge tends to be higher, while in up-trending markets the hedge is lower, with the idea of protecting against broad market risks and broad market declines.

Purpose's first family of funds was offered in September 2013 and now stands at approximately US$2bn in assets across all funds. "All our funds are offered as ETFs or mutual funds because we wanted to provide various access points to our clients. We are open to work with a partner to license this ETF for use in a structured product," said Tasevski. "One of the benefits of structured products is that they provide flexibility, allowing for example to provide a certain amount of leverage which provides a better risk adjusted profile."

Purpose Investments came out of US-based firm Claymore Investments which expanded to Canada in 2006. Claymore was based on index strategies and created the first fundamental index strategy that was offered in a retail fund structure. That business was sold to Blackrock in 2012, after which Purpose Investments was started with the goal of providing strategies that took the traditional benefits of ETFs and added on top of that a risk management aspect focusing on downside protection, according to Tasevski.

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Purpose Investments markets covered put strategy in Canada