A New Lens on Nasdaq Income

Income from the equity market has been one of the more discussed topics of the past several years. Volatility has remained elevated, technology has continued to dominate index leadership, and advisors have searched for ways to monetize that volatility without giving up too much of the upside that has driven returns.

Most options-income strategies in the marketplace approach the problem the same way. They sit on top of a broad index, write calls against it on a fixed schedule, and pass the premiums through as monthly distributions. The mechanics are simple. The trade-off is also simple: when the index runs, the cap kicks in.

The Infrastructure Capital Nasdaq Option Income ETF (Nasdaq: QVOL) takes a different approach.

Active stock selection inside an active option overlay

QVOL is built on the Nasdaq Composite Index rather than the narrower Nasdaq-100. The two indexes are tightly correlated because the Nasdaq-100 represents roughly 80 to 90 percent of the Composite by market capitalization, but the Composite includes a broader set of names. That broader opportunity set is the foundation of QVOL’s design.

Figure 1. The Nasdaq Composite captures the Nasdaq-100 plus thousands of additional names. Source: Nasdaq.

Inside that opportunity set, Infrastructure Capital actively selects equities using quantitative, qualitative, and relative-value factors. Lower relative price-to-earnings, lower price-to-book, higher relative profitability, and favorable price-to-cash-flow are the kinds of inputs that drive position sizing. The portfolio still gives investors meaningful exposure to the largest technology names that anchor the index, but the manager has the flexibility to over- or under-weight individual companies based on valuation rather than mechanical capitalization weighting.

The option overlay sits on top of that equity book and is run with the same active mindset. Rather than systematically writing long-dated calls against the full index, QVOL writes options selectively, on individual Nasdaq names or on the index itself, in shorter durations. The intent is to harvest premium from companies the manager believes are over-valued at a given moment while leaving more upside intact across the rest of the book.

Targeting high option premium

QVOL’s option strategies are designed to generate high income through option premiums by seeking a target annual income level. Premium income is a function of three things: how much volatility the underlying carries, how much of the book is overwritten at any given time, and the strike and tenor of the calls being sold. Technology and the broader Nasdaq complex have historically priced higher implied volatility than the broad market. That is the structural source of premium QVOL is designed to convert into monthly distributions.

Figure 2. Implied volatility has historically run higher on tech-heavy indexes than on broad-market measures. Illustrative averages from CBOE volatility indexes.

Why the Composite matters

There is a tendency to treat “Nasdaq” and “Nasdaq-100” as interchangeable, but the Composite includes thousands of companies and gives a manager more flexibility to pick spots. A passive Nasdaq-100 overlay strategy is, by construction, locked into the same 100 names in the same proportions. QVOL is not. When valuations look stretched in a handful of mega-cap names, the manager has the latitude to underweight those names, lean into smaller Composite constituents that screen better on relative-value factors, and select option strikes accordingly.

That flexibility is the point of running an active strategy in a category that is dominated by passive approaches.

Investment philosophy

Infrastructure Capital’s investment philosophy across its fund lineup is built on three ideas: discipline, consistency, and risk management. Each transaction is evaluated against the time horizon for the position and the broader portfolio context. Sell decisions are driven by valuation, by changes in a company’s fundamental position, by the appearance of a better opportunity, or by a loss of confidence in the original thesis. The same framework applies inside QVOL: equity selection, option selection, and exit decisions all flow from a single disciplined process.

Figure 3. The three design pillars of QVOL. Source: Infrastructure Capital.

For more on Infrastructure Capital, please visit https://www.infracapfunds.com.

Where QVOL fits

QVOL joins an Infrastructure Capital lineup that already includes the Bond Income ETF (NYSE Arca: BNDS), the Small Cap Income ETF (NYSE Arca: SCAP), the Equity Income ETF (NYSE Arca: ICAP), the Virtus U.S. Preferred Stock ETF (NYSE Arca: PFFA), the REIT Preferred ETF (NYSE Arca: PFFR), and the MLP ETF (NYSE Arca: AMZA). It is the firm’s first listing on the Nasdaq exchange and its first product designed specifically around Nasdaq Composite exposure.

Lead Portfolio Manager Jay Hatfield brings more than thirty years of experience across the firm’s strategies. Infrastructure Capital manages more than $3.5 billion in total assets as of this writing.

For a prospectus or more information about the Fund, please contact Craig Starr at 212-763-8336 or Craig.Starr@icmllc.com, or visit https://www.infracapfunds.com.

A word about risk: Investing involves risk. Principal loss is possible. The Fund is a recently organized investment company with no operating history prior to the date of this Prospectus. As a result, prospective investors have no track record or history on which to base their investment decision. Derivatives may pose risks in addition to and greater than those associated with investing directly in securities, currencies or other investments, including risks relating to leverage, imperfect correlations with underlying investments or the Fund’s other portfolio holdings, high price volatility, lack of availability, counterparty credit, liquidity, valuation and legal restrictions. Options transactions involve special risks that may make it difficult or impossible to close a position when the Fund desires. The prices of securities the Adviser believes are undervalued may not appreciate as anticipated or may go down, the valuations may never improve or returns on value equity securities may be less than returns on other styles of investing or the overall stock market. Leverage is investment exposure which exceeds the initial amount invested. When the Fund borrows money for investment purposes, or when the Fund engages in certain derivative transactions, such as options, the Fund may become leveraged. A high portfolio turnover rate (portfolio turnover in excess of 100% of the average value of the Fund’s portfolio) has the potential to result in the realization and distribution to shareholders of higher capital gains, which may subject you to a higher tax liability.

QVOL is distributed by Quasar Distributors, LLC

The Nasdaq is a stock exchange, aka a marketplace where investors can buy and sell shares of publicly traded companies. The Nasdaq Composite is a stock market index composed of thousands of stocks listed on the Nasdaq Stock Market®, with a particular emphasis on technology-related companies. Established in 1971, it is known for featuring a wide range of companies—from established giants like Apple and Microsoft to smaller, fast-growing firms—reflecting a broad cross-section of the U.S. technology sector. The index is market capitalization-weighted, meaning that larger companies have a greater influence on its overall performance, and it is commonly used as a benchmark to gauge the health and trends of the technology-driven segments of the American economy.

Nasdaq® is a registered trademark of Nasdaq, Inc. (which with its affiliates is referred to as the "Corporation") and is licensed for use by Infrastructure Capital Advisors, LLC. The Product has not been passed on by the Corporations as to its legality or suitability. The Product is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT.