REX HOOD Growth & Income ETF (HOII)

HOII is an exchange-traded fund that holds large US companies and sells call options against them every month to generate extra income. It is designed for investors who want broad stock exposure but also want higher current payouts. The tradeoff is simple: in exchange for the monthly option income, you accept a cap on how much your gains can be if the stock market explodes higher.

What it does in plain terms

Imagine you own a diversified portfolio of blue-chip stocks. Every month, you sell someone the right to buy a small portion of those stocks at a slightly higher price than they cost today. You collect cash for granting that right. Most months, the stocks do not rise above that higher price, so you keep the cash and sell again next month. Some months they do, and you sell your shares at the agreed price — which means you miss additional gains. Over time, the cash from selling these monthly rights (called “call options”) boosts your returns in sideways or down markets but caps them in up markets.

HOII automates this. It tracks a portfolio of around 800 large-cap US companies (the Russell 1000 Value index — the bigger, lower-priced stocks rather than the faster-growing ones) and sells call options on that entire portfolio every month. The premium from selling these calls gets paid to shareholders as distributions, making HOII’s headline yield much higher than it would be if you owned the stocks alone.

The Russell 1000 Value tilt

Value stocks are companies trading at low prices relative to their earnings, book value, or cash flow. They are typically established, slower-growing businesses — utilities, banks, energy companies, industrials — rather than the high-fliers chasing innovation. The Russell 1000 Value index includes the 800 largest value-tilted stocks in the US market. Because HOII focuses on value, you are betting that these slower-growing, cheaper stocks will do okay — not necessarily beat faster-growing companies, but hold their own.

In decades when value outperforms (such as the 2000s after the tech bubble burst), HOII does well. In decades when growth dominates (such as the 2010s), HOII lags. The covered call overlay can partially offset that lag by generating income, but it cannot make a value fund into a growth fund.

The monthly option sale

Every month, REX sells call options at strike prices set by a systematic algorithm. The strike is typically set around 5–10% above the current price of the underlying portfolio — high enough that the calls will not be exercised most months, low enough that the premium collected is meaningful.

When the fund sells these calls, it collects cash upfront. If the market does not rise above the strike by month-end, the calls expire worthless, the fund keeps the cash, and the process repeats. If the market does rise above the strike, the call buyers exercise, and the fund sells its positions at the strike price — capturing that gain but missing anything higher.

Over a year, suppose HOII would have delivered a 10% return from stock price appreciation alone. The monthly option premiums might add 2–4 percentage points of income (depending on market volatility and how far out the strikes are set). But if the stock market rallies 25%, HOII is stuck at the cap — maybe 14–16% return instead of 25%, because half the portfolio gets called away and the fund has to reinvest at higher prices or hold cash.

Tax efficiency and distributions

HOII is a tax-managed fund, which means REX deliberately tries to minimize taxable distributions to shareholders. The option premiums are distributed monthly, and they are typically taxed as ordinary income (or short-term capital gains), not the preferential long-term capital gains rate. That makes HOII less tax-efficient in taxable accounts than a simple buy-and-hold value stock fund.

In a tax-deferred account (IRA, 401k), those distribution-tax complications do not apply, and HOII’s higher income becomes purely advantageous — you get the covered-call premium and the option-sale mechanics run in your tax-sheltered account without dragging money out for taxes each year.

When the market moves fast

Covered-call funds have an important weakness: they underperform when markets rally sharply because the calls cap your gains. In 2020, when the stock market bounced back hard from the March crash, covered-call funds lagged significantly. In 2023, same story — a strong rally, and HOII could not keep up because the calls were capped. Investors who bought near the lows hoping for a big rebound would have been frustrated by the missing upside.

This is not a flaw in execution — it is the core design. You pay for the monthly income by giving up some of the upside. In sideways or down markets, HOII looks smart; in ripping bull markets, it looks like a missed opportunity.

Who fits with HOII

HOII works for retirees or others drawing income from their portfolio who value steady monthly payouts. It works for investors who think the stock market will move sideways to modestly higher and want to boost returns by capturing option premiums. It does not work as well for aggressive growth investors or for people who believe a bull market is coming and want to maximize gains.

The fund also works best in accounts where the tax drag is lowest — retirement accounts, or taxable accounts for investors in lower tax brackets where the ordinary-income nature of option premiums matters less.

How to research HOII

Check the fund’s fact sheet to see the current strike prices for the next month’s call sales and the probability that the fund will be fully called away (a high probability means the market is expected to jump). Look at the fund’s yield and compare it to a standard Russell 1000 Value index ETF to see how much extra income HOII is generating. Review performance over rolling 1–3 year periods, noting whether HOII beat or lagged value in up markets and down markets. If you are interested in a covered-call value fund, compare HOII to competitors offering similar strategies; different funds set their strikes and rebalance at different frequencies, and those mechanical differences can meaningfully affect long-term returns. Track how often the fund reports that calls were exercised and positions were called away; if it happens frequently, the strike is too low, and you are capping gains too often to make the trade worthwhile.