Introducing KQQQ: A Large Cap Tech ETF with Dynamic Downside Mitigation
Investors today face a clear challenge. The three to five-year outlook for large-cap tech stocks remains compelling. But these names have led the markets to all-time highs, raising concerns about a looming correction. How can an investor gain strategic exposure to such exciting growth companies, without making a tactical mistake when it comes to timing their allocation?
An innovative new ETF may offer the solution. The Kurv Technology Titans Select ETF (Ticker: KQQQ) seeks to maximize total return by actively managing a portfolio with concentrated exposure to high conviction technology giants, while at the same time generating potentially tax-efficient income.
Large technology firms have been the growth engine of the economy (and indeed, the market), for quite some time now. And there’s little reason to believe this will change anytime soon. If anything, the embrace of generative AI should further cement these companies’ place as market leaders. What’s more, a curious characteristic of today’s tech giants is that they have exhibited similar performance to broad indices during corrections—but performed better during market upswings. Talk about a favorable risk-reward proposition.
KQQQ aims to own 15-20 large-cap tech stocks at any given time. Crucially, KQQQ is not limited to the Nasdaq 100, nor those names officially classified as technology companies. This feature allows the portfolio managers to own a company such as Oracle (which isn’t listed on the Nasdaq)—and it also means the ETF can own Amazon (which technically is a consumer company).
The ETF is slightly overweight stocks in the portfolio with the best price momentum. As most traders intuitively know, names that are going up tend to keep going up, until they reach a pivot point.
Of course, some of the stocks owned by the ETF may at times lack momentum. In these situations, KQQQ writes call options, which can generate income for the ETF—and may be distributed to investors on a tax-advantaged basis.
The ability to write covered calls against portfolio holdings becomes arguably even more important when equity markets experience sharp selloffs. In these episodes, the ETF writes call options against every name in the portfolio, providing some measure of downside mitigation for investors. With market corrections comes higher options premiums (due to a rise in implied volatility), further enhancing the income received by KQQQ.
Many income investors shy away from tech stocks, as dividends are either paltry or non-existent. As a result, these individuals end up owning ‘old economy’ stocks in the financial, energy, or utility sectors. In the process they end up sacrificing the growth that comes from large-cap tech.
KQQQ seeks to solve this problem. Investors can have their cake (access to growth companies) and eat it, too (receive income). Add in savvy downside mitigation and that’s a recipe for success.
An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. To obtain a prospectus containing this and other information, please call 1-833-955-KURV (5878). Read the prospectus carefully before investing by clicking here.
Definition:
Covered Call: The term covered call refers to a financial transaction in which the investor selling call options owns an equivalent amount of the underlying security. To execute this, an investor who holds a long position in an asset then writes (sells) call options on that same asset to generate an income stream. The investor’s long position in the asset is the cover because it means the seller can deliver the shares if the buyer of the call option chooses to exercise.
The Fund is new with a limited operating history.
Fund Objective:
The Fund seeks maximum total return, consistent with prudent investment management. An investment in the Fund entails risk, including the loss of principal. The Fund is not a complete investment program and investors should review the risks associated with the Fund before investing. The Fund is an actively managed portfolio, and the portfolio managers will apply investment techniques and risk analyses that may not produce the desired result. There can be no guarantee that the Fund will meet its investment objective. As an ETF, the Fund is exposed to the additional risks, including: (1) concentration risk associated with Authorized Participants, market makers, and liquidity providers. Such concentration could negatively impact liquidity; (2) costs risks associated with frequent trading; (3) market prices may differ than the Fund’s net asset value; and (4) liquidity risk due to a potential lack of trading volume.
Fund Risks:
The Fund will invest in the equity securities of, or derivative instruments (e.g. options) relating to,Technology Companies. Accordingly, the performance of the Fund could be negatively impacted by events affecting this sector. Market or economic factors impacting technology companies and companies that rely heavily on technological advances could have a significant effect on the value of the Fund’s investments. The value of equity securities, such as common stocks and preferred securities, may decline due to general market conditions which are not specifically related to a particular company or to factors affecting a particular industry or industries. Equity securities generally have greater price volatility than fixed income securities. When the Fund or an Underlying Kurv ETF invests in fixed income securities or fixed income ETFs, the value of your investment in the Fund will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the value of fixed income securities. The Fund may engage in certain transactions, such as options, that may give rise to leverage, magnifying gains and losses and causing the Fund to be more volatile than if it had not been leveraged. This means that leverage entails a heightened risk of loss. Because the Fund is “non-diversified,” it may invest a greater percentage of its assets in the securities of a single issuer or a smaller number of issuers than if it was a diversified fund. As a result, a decline in the value of an investment in a single issuer or a smaller number of issuers could cause the Fund’s overall value to decline to a greater degree than if the Fund held a more diversified portfolio.
Underlying Kurv Yield Premium ETF Risks:
The Fund will invest in Underlying Kurv ETFs, so the Fund’s investment performance is likely to be related to the performance of the Underlying Kurv ETFs. An investment in the Fund entails more costs and expenses than the combined costs and expenses of direct investments in the Underlying Kurv ETFs. Each Underlying Kurv ETF invests in options contracts which are based on the value of its Underlying Security and subjects each ETF to the risks associated with the industry of the corresponding Underlying Issuer. Each Underlying Kurv ETF employs a strategy of selling call option contracts, limiting its participation in the value increase of the Underlying Security during the call period. Should an Underlying Security’s value increase beyond the sold call options’ strike price, the Underlying Kurv ETF may not experience the same extent of increase, potentially underperforming the Underlying Security and experiencing a NAV decrease, especially given its full exposure to any value decrease of the Underlying Security over the call period. The Underlying Kurv ETFs aim to provide monthly income, although distributions are not guaranteed, and amounts may vary. Monthly distributions may consist of capital returns, reducing each ETFs NAV and trading price over time which could lead to significant losses for investors (including the Fund). Repetitive payment of distributions may erode the Underlying Kurv ETFs NAV and trading price over time, which could result in notable losses for the Fund. The continuous application of each Underlying Kurv ETFs call writing strategy impacts its ability to participate in the positive price returns of its Underlying Security, which in turn affects each Underlying Kurv ETF’s returns both during the term of the sold call options and over longer time frames. Some securities held by the Underlying Kurv ETFs, including options contracts, may be difficult to sell or be illiquid, particularly during times of market turmoil. This risk is greater for the Underlying Kurv ETFs as each will hold options contracts on a single security, and not a broader range of options contracts.