Discover the NBI SmartData Covered Call Funds
Invest for growth, and earn income along the way
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Equity income | Three strategies | SmartData intelligence | Generate income
Generate income without leaving equity markets
Discover three strategies designed to generate monthly income from equity markets by combining the SmartData quantitative approach with a dynamic, systematic option-writing overlay.
Targeted monthly income
The strategies seek to generate distributions by combining option premiums with the return potential of the underlying SmartData equity funds. Returns from the underlying securities may also help support distributions and offset periods when the option overlay detracts from performance.
A SmartData equity engine that goes beyond the index
The underlying equity portfolios are based on the SmartData strategies, designed to identify quality companies with attractive valuations and positive market signals.
A dynamic option approach
The option strategy adapts to changing market conditions to help achieve income objectives.
Tax efficiency potential
Premiums from writing covered calls may receive more favourable tax treatment than ordinary income. 1
Three strategies, three income profiles
The NBI SmartData Covered Call Fund suite aims to enhance the return potential of traditional equity exposure by using an option-writing strategy to collect premiums. Covered calls also aim to help reduce part of the downside risk if the underlying exposure declines. One of the three strategies also uses leverage.
| ETF Series | Distribution frequency | Market | Dynamic, systematic option-writing overlay | Target Leverage Ratio | |
|---|---|---|---|---|---|
| NBI SmartData Enhanced Yield U.S. Equity Fund | NSUY | Monthly | U.S. equities | S&P 500 options 2 | ~1.25x |
| NBI SmartData International Equity Covered Call Fund | NICC | Monthly | International equities | EFA options | - |
| NBI SmartData U.S. Equity Covered Call Fund | NUCC | Monthly | U.S. equities | S&P 500 options 2 | - |
Different return drivers for a more intentional approach to equity income
SmartData equity engine
Exposure to U.S. or international equities through NBI SmartData strategies that use quantitative models and AI to analyze companies from several perspectives: quality, valuation, market sentiment, themes, and trends.
Option income engine
A covered call overlay designed to turn a portion of market volatility into monthly income.
Enhanced yield engine
A leverage mechanism (~1.25x) designed to target a higher level of income while maintaining exposure to the NBI SmartData U.S. Equity Fund. 3
Only for the NBI SmartData Enhanced Yield U.S. Equity Fund
The power of SmartData at the heart of the strategy
The NBI SmartData strategies are designed to analyze large amounts of data and identify investment opportunities that may be less visible through traditional analysis.
In partnership with the Quantitative Investment Strategies (QIS) team at Goldman Sachs Asset Management, we remain at the forefront of research and the deployment of the latest quantitative techniques. This expertise enables us to extract as many investment signals as possible from the ever-growing amount of data produced each day.
Watch Laurene Azoulay, global co-head of client portfolio management for the QIS team, explain their approach.
7 min - transcription
How covered calls and leverage mechanisms can generate income
A covered call strategy combines equity exposure with the sale of call options. The fund receives an option premium, which can contribute to the income distributed to investors.
1. The fund maintains equity exposure
The fund maintains exposure to equity markets, based on the selected strategy.
2. The fund sells call options
The strategy sells options on a portion of the exposure, using a disciplined approach.
3. The fund receives option premiums
These premiums can contribute to monthly distributions.
4. The investor receives monthly income
Distributions may come from several possible sources, including option premiums, dividends, and other sources of return from the portfolio.
In exchange for option premiums, a covered call strategy may limit some upside potential when markets grow. It may also help cushion a portion of moderate declines, but it doesn’t fully protect against losses related to equity markets.
How does leverage work in an enhanced yield fund?
Combined with the sale of options, the NBI SmartData Enhanced Yield U.S. Equity Fund also uses leverage mechanisms. Leverage primarily works through borrowing cash and makes it possible to increase the equity base on which options are sold, which maximizes premiums received and allows for higher distributions.
Frequently Asked Questions
Covered call strategies tend to perform best in stagnant or moderately rising markets, where investors can participate in a portion of the market's upside while also benefiting from the option premiums generated. The combination of capital appreciation and premium income can enhance total return potential in these environments.
In declining markets, the option premiums collected can help cushion a portion of the downside, making covered call strategies generally more defensive than a traditional equity portfolio. While the portfolio may still experience losses if the underlying securities fall, the income received from selling call options can partially offset those declines.
In rapidly rising markets, covered call strategies may lag a fully invested equity portfolio because gains above the option strike price are typically forfeited when the options are exercised. In exchange for this capped upside, investors benefit from the consistent income generated by the strategy.
Overall, covered call strategies seek to provide a balance between income generation, reduced volatility, and equity market participation. They may be particularly attractive during periods of elevated market volatility, when option premiums tend to be higher.
Distributions may come from several sources, including option premiums, dividends, or distributions from the underlying securities, realized capital gains and, in some cases, return of capital.
No. Distributions are not guaranteed. They may vary based on market conditions, volatility levels, available premiums, dividends, and the overall return of the portfolio.
No. Option premiums may help cushion part of the downside, but they don’t provide full protection. The funds remain exposed to equity market risk.
When markets rise quickly, the options sold may limit part of the upside captured by the strategy. This is the main trade-off associated with covered calls.
NUCC targets monthly income from exposure to the NBI
SmartData U.S. Equity Fund.
NICC targets monthly
income from exposure to the NBI SmartData International Equity
Fund.
NSUY targets a higher level of income from
exposure to the NBI SmartData U.S. Equity Fund, using a
structure designed to enhance distributed yield.
For U.S. strategies, options are written on the S&P 500. For the international strategy, options are written on EFA, the iShares MSCI EAFE ETF. This approach allows the options overlay to be applied efficiently to the targeted market exposure.
Combined with its option-writing overlay, the NBI SmartData Enhanced Yield U.S. Equity Fund uses a modest and controlled leverage mechanism. The option overlay is designed to generate premiums and support monthly distributions, while leverage is used to help maintain stronger equity-market participation after call writing reduces part of the upside. This structure seeks to support a higher distribution objective than a traditional covered call strategy, while remaining subject to the fund’s risk limits. Leverage can also amplify gains and losses, particularly during market declines.
In some cases, option premiums may receive different tax treatment than traditional interest income. However, the final tax character of distributions may vary and is only determined after the end of the tax year. Investors should consult their tax advisor based on their personal situation.
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Little details that matter
Active management is about having an informational advantage in the market, and we believe that today, data and technology can be major differentiators. A quantitative approach is inherently scalable. With the right infrastructure, experience and knowledge, we can unlock the power of data to uncover potential investment opportunities. We believe quantitative investing can be highly objective and transparent, with a clear, defined investment process.
Decisions are based on empirical evidence, not gut feelings. Such an approach could potentially lead to more risk aware, explainable and repeatable investment results, as well as consistency across different asset classes and markets.
Our Quantitative Investment Strategies team within Goldman Sachs Asset Management, or QIS, takes a data driven approach to investing. With a proven and tested 35 plus year track record, we aim to stand at the forefront of innovation in seeking consistent and differentiated returns in a risk managed manner across asset classes. We manage over $200 billion in assets with a global team of over 100 investment professionals and data scientists, supported by more than 100 engineers. As a boutique style team powered by the breadth and depth of Goldman Sachs, we are able to capitalize on major investments from the firm in infrastructure and technology in order to digest massive amounts of data and extract investment insights through the most sophisticated methods, including artificial intelligence.
The firm is a golden resource for data sourcing, but also for data processing, as computing power is incredibly important. Our edge comes from our ability to synthesize information from massive amounts of data across asset classes. We seek to know more, see better and act faster as we process over a trillion data points to form investment views.
Innovation is in our DNA, and over the last 45 years, we have consistently grown and refined our investment models with the latest technologies. We are fortunate to serve clients globally and deliver tailored alpha solutions that seek to solve each and every one of their objectives.
Within our equity platform, we consider each company within our 15,000 stock investment universe as a potentially attractive investment opportunity, and we seek to truly understand and evaluate each one. We leverage data to build a 360° view of each stock and its place within the broader market. Over the last 35 years, we have built a huge repository of investment signals that have continuously been tested.
We have a real data advantage, and we make the most of it. We dig into everything from traditional data sources to completely new and innovative ones to help generate unique investment ideas.
While Goldman Sachs affords us far reaching access to a wide range of diverse datasets, that alone is not sufficient.
In order to capture the most value, we believe creative, human driven, economically rational and complex computational abilities are also critical.
Markets are constantly evolving. As such, we rely on data to help us evolve with them. There is a dynamic cohort of key players in the market, and we inform our investment process by understanding how other market participants are allocating capital, from hedge fund investors to retail investors.
Applying sophisticated analytics to this structured data, we seek to interpret investor sentiment to better navigate market conditions.
While this structured data informs our investment decisions, we also incorporate massive amounts of unstructured data, which requires considerable experience, expertise and infrastructure to analyze and extract valuable insights. For example, we process an abundance of text data, including hundreds of thousands of analyst research reports, earnings call transcripts, newspaper articles and even patent publications from all over the world.
When digesting all of that text, we get a better sense of the sentiment around companies and the broader market themes that may impact stock prices.
In addition to text, we have built an extensive library of audio files equivalent to half the size of the global Spotify library.
So now we are even able to listen in on earnings calls to understand not just what a company’s management team is saying, but also how they are saying it. This further deepens our ability to forecast the prospects of a given company.
All in all, we are talking about trillions of data points. This scale means that we can utilize all those different pieces of information to inform ourselves about the forward trajectory of stocks, helping our clients capture those micro trends within their portfolios in a risk managed way.
Having that informational edge allows us to be quicker, more dynamic and more adaptive to different kinds of market situations, and helps us deliver consistent long term outperformance for our clients. Our expertise is not limited to public equities. We are also seasoned professionals in liquid alternatives. With 15 plus years under our belt, we were early pioneers in the field of hedge fund replication, with a strong track record.
Our secret weapon is our unique database, which covers roughly 20,000 hedge funds. We aim to capture what drives returns across the hedge fund universe, with four key categories and 25 investment styles.
This gives investors access to a wide range of investment strategies that could adapt well through changing market environments.
At QIS, we continue to conduct research and strive to ensure we maintain our edge as the investment landscape evolves.
We are constantly listening, learning and evolving with our clients. That is why we are dedicated to proactively expanding our expertise and capabilities, ensuring we can nimbly address their evolving needs. We are committed to being there with you through every step of your investment journey.
1 As compared to an investment that generates an equivalent amount of interest income.
2 Depending on assets under management, availability, liquidity and transaction costs, the strategy may use options on the S&P 500 or on an ETF that seeks to replicate the S&P 500 Index, the SPY.
3 The target leverage ratio represents an average level of leverage and may vary at the manager’s discretion based on market conditions, including the level of implied option volatility, in compliance with the conditions stated in the Simplified Prospectus.
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