Q: Hi, I am considering buying the dip into some covered-call tech funds. I was looking at a roughly equal investment in ZWT and QQCL. I'm aware of the limited upside potential of these funds but am buying for income with some capital gain (ZWT). I'd appreciate your thoughts on the possible pitfalls inherent in these CC funds. Thanks.
5i Research Answer:
We are not sure there are 'pitfalls' if investors understand them. Yes, they can underperform in a rally. Some of the distributions may be return of capital, but option premium is taxed as capital gains, so tax categorization will vary by fund. They can certainly decline if the market swoons. Many investors may buy these for income not realizing they could still decline sharply. Fees tend to be fairly high (i.e. 0.73% on ZWT). But if an investor wants diversified tech exposure and enhanced income, we would consider them decent funds overall.