QYLD ETF Review - Avoid This Fund as a Long Term Investment
ฝัง
- เผยแพร่เมื่อ 26 ก.ค. 2024
- QYLD has been gaining popularity among income investors as a high-yield play on the NASDAQ 100. Here we’ll review this ETF and look at why it’s probably not a great choice for a long-term buy-and-hold portfolio.
"Better-than-QYLD" pie for M1 Finance: optimizedportfolio.com/go/qyl...
// TIMESTAMPS:
00:00 - Intro
00:12 - QYLD Review
12:10 - Conclusion
// SUMMARY:
QYLD is an ETF from Global X that holds the NASDAQ 100 index and also sells covered calls on it to generate income. To my knowledge, it is the largest covered call strategy fund with over $3 billion in assets. I have yet to see a compelling reason for investors’ fascination with these funds.
The only appropriate scenario I can see for buying these types of funds is if the investor, for some reason, consciously wants to implement a rolling covered call strategy without handling the logistics of writing the options themselves, in order to generate regular income (from the option writing) that they need every month. Let me put this very simply and straightforwardly. If you do not need that regular income every single month to pay for your expenses, there is no reason for you to buy funds like these. More generally, I’d even say if you are reinvesting its dividends, there is no reason for you to buy funds like these.
But if income is the concern, I’d say just go with CEF’s, or again, a combination of dividend stocks and high-yield bonds. “Income” is overrated anyway. I’d be more likely to go with something like SWAN or SPD and just set up an automatic monthly transfer from the brokerage account that sells shares for me; there’s my “income.” In the interest of full disclosure, I’m not a dividend investor anyway, and I’d rather just sell shares as needed, so these types of yield-focused strategies don’t appeal to me regardless. I’d rather create my own dividend when I want to. But after looking at the objective facts, I still can’t understand why anyone would buy these funds.
Covered calls are simply not an efficient way to de-risk a portfolio.
In fairness, with bonds entering a headwind and stock valuations at all time highs, options strategies may indeed prove fruitful going forward for some unknown time period for the income investor with a short time horizon; but I’d still submit that it’s highly unlikely we’d see a flat market over the long term, and I’d still prefer something with downside protection like NUSI. Only time will tell. Covered call funds are also not the worst strategy I’ve seen to try to generate income.
Do you own any of these income-focused option strategy ETFs like QYLD, RYLD, XYLD, JEPI, HNDL, NUSI, DIVO, etc.? Let me know in the comments.
Read the blog post here: www.optimizedportfolio.com/qyld/
#dividends #qyld #etf #dividend #etfs #stocks #stockmarket #fire #dividendinvesting
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Getting ready for a barrage of dislikes and a dumpster fire of a comments section on this one.
What if I hate making money have you thought about that!? /s
I dare you to post this in QYLD Gang on reddit lol. Great video per usual.
Other people have linked the blog post there several times in the past. It went about as you'd expect for the most part, but did actually convert some folks.
Just realized someone did post it there this morning actually.
@@OptimizedPortfolio Yeah I saw that, getting the sort of replies that I expected.
I just have to thank you for your unparalleled knowledge and research. I follow along your reddit page and posts as well. You wrap up hours, days, even weeks of research into a 15-20 minute video that explains every facet so well, and in such a professional manner. One of the best, if not THE best investing channels out there!
I just realized this sounded like a spam comment, but it's 100% genuine. Seriously, your sharing of knowledge is invaluable.
Wow Garrett, thanks so much for the kind words! Maybe the best compliment I've gotten. Thanks for taking the time to write such a thoughtful comment. Really glad you've found my ramblings useful.
Thanks. I subscribed. I can still see why this would be nice for some folks to have, or pass along to their loved ones as it looks like the dividend has not changed much during the last 10 years. Granted that has not included a 2008 market as your video correctly mentioned.
Thanks for watching and subscribing!
I usually don't leave comments, however I have watched a ton of videos on diversifying my portfolio with ETFs and by far your channel and this video has put me off QYLD even with its 10% plus DY. You deserve a lot more subs and likes, keep up the awesome work and I look forward to more of your videos! (What do you think of QYLG?)
Thanks for taking the time to comment and for the kind words! Haven't looked at QYLG; at a glance it looks like sort of a halfway point between QYLD and QQQ.
As always great video ! Thank you.
What's your opinion on "alternative investments" like private diverse income-producing real estate funds ? Or are those scams ?
Depends on what we're talking about specifically. Most alts are usually just expensive and unnecessary in my opinion. Private lending looked decent until institutional money rushed in and took it over, thereby lowering returns.
@@OptimizedPortfolio Thanks for the reply. Overall for an investment with 0% growth, what would you consider as an acceptable return percentage ?
@@osn19 Not sure what you mean.
I can assume your projection about push back may be right but as for me I really appreciate your perspective. Please remember that QQQ was dead money from 2008 to 2014. That is, one would not have incurred a gain for any money invested before 2008 until 2014. And so QQQ is always viewed with massive gains over its lifetime but that is not true. Given the poor return on Bonds and assuming multi years of flat with volatility or negative returns over the next 5 years or so, and given this high inflationary environment, some could view this as defensive for the short-term liquid assets (outside your saving investment). I agree with your approach of mixing or broadening the indexes for such approach (NUSI, Ryld) Thanks for this content!
Thanks, Jim!
what do you use for your backtesting on the comparison? was mentioned at 11:54
thanks!
www.portfoliovisualizer.com/
I forgot to put Source text.
Completely agree, but you can use XYLD and also own other stuff. Individual companies, SPY, QQQ, or DOW. It's just about how you put your plan together and not keeping all the eggs in one basket. Even having some money in the Russell 2000 can be a different idea, and sell calls against it.
Good point! Big fan of diversification.
Excellent, insightful, overview and analysis of QYLD. And I fully agree you don't understand why the ETF is so attractive to its investors; nor do I. Immediately prior to seeing your video, I read that a major investment organization purchased over 450K shares. So Other than collecting the .6% fee, there's some investors with a plan to profit. Do you think they're found a way to profit from selling QYLD options?
Thanks for watching and commenting!
I was browsing Reddit a while back, curious how to take advantage of M1's low margin rates. I thought dividends might be the way. That's when I saw you slamming pro dividend posts using cold hard facts and logic lol. I soon discovered your website which has become one of my most influential investing resources. Keep up the good work sir.
Wow thanks so much for the kind words, Brent! Really glad you've found it useful! It's comments like yours that keep me motivated to keep doing it. :)
Can you do one on CEF's? PDI, GOF, Gabelli Income, CA muni's etc.
Yep, will prob do a video on CEF's at some point.
So, buy NUSI instead?
Maybe. Thanks for watching!
your arguments always seem to be focused on "qyld is worse than just investing in qqq", which i won't disagree with. and while qyld goes down when qqq goes down, CAN qyld outperform qqq as long as qqq only have a moderate growth year? growing less than 8%?
i.......i'm trying to think if this is worthwhile using alongside any of my other investing. because this doesn't give value at the exact same times the stock does......it just seems like there's got to be a value/reason to use this.
The takeaway should not be that "QYLD is worse than just investing in QQQ." The takeaway is that there are more efficient ways to de-risk a portfolio and to generate "income."
No, QYLD by definition cannot outperform QQQ in a bull market, as again, covered calls cap the upside at the strike price.
As noted, the value/reason to use a covered call fund would be a flat market in which diversifiers like bonds also do nothing.
@@OptimizedPortfolio yes, in a flat out good bull market, this covered call strategy does not beat out these indexes.........but what about it's consistency yes, the underlying value of qyld has changed over the years, and month to month. But it has still given out a very healthy consistent payment.
You were saying it was quite concerning some people were buying qyld on margin. We'll, if it's a low fee, and qyld is very consistently paying out a good deal above the fee......doesn't it pay for itself? Heck, drop qyld's price from 25 to 20, so the "yearly" total payout decreases also. If the margin fee is low enough, doesn't it still pay for itself due to the consistent returns?
@@igiveupfine Once again, total return is all that matters at the end of the day (even for income investors). Period. Dividends/distributions are only one component of that. For QYLD, they are a very large component.
No. Yield being greater than the margin interest rate means nothing. See above. Dividends are not free money. If this were the case, we could all borrow ad infinitum and get rich with virtually no risk.
Suppose you borrow 100% margin on a $500 position at a 5% interest rate for total exposure of $1,000. Further suppose this all goes into a covered call fund like QYLD paying a 10% yield and at the end of a very bad year, your $1,000 position has dropped by 50% to $500. You now owe the broker $525 ($500 + $25 in interest), and your $100 you received in dividends doesn't help you much...
Applying leverage to any strategy invariably increases risk.
Is QYLD meant to be a growth investment or an income tool? I definitely do not like it for growth nor in taxable brokerages, because it is taxed as regular income (it is an income fund after all).
I would think for retired folks with a Roth IRA, collecting 12% dividends each month without having to sell shares is way better than having to use cash reserves to pay bills in a crashing market or sell VTI or BND shares to pay bills in a crashing market. So for the retired investor, QYLD may be a superior choice for monthly income, especially at times like this.
Plus the evidence we have from 2020 is that QYLD comes back from crashes, even though it comes back less quickly than its QQQ counterpart.
While the share price of QYLD appears to decline over time, this can be mitigated by purchasing shares on sale.
Long story short, this is a great income tool for people who can’t live off of the 1.4% quarterly dividends that VTI throws off. But you gotta be wise, you gotta know why you are purchasing QYLD, and you gotta know what you’re doing.
Income tool.
As I explained already in the video and elsewhere, receiving a dividend and avoiding selling shares is not somehow superior to selling shares of an equal value. Arguably more importantly for the retiree, as a covered call fund's share price decreases (as in a crash), so too do those distributions.
As I also already explained, a traditional stocks/bonds portfolio would be expected to outperform a fund like QYLD during a crash (which likely becomes even more true if we add other diversifiers like gold), and a flat market is the environment where a covered call fund shines.
@@OptimizedPortfolio I guess I question that. If you’re trying to draw from a $500,000 portfolio and you just saw your portfolio dropped to $375,000, and now you have to sell shares to pay your electric bill and your property taxes and a medical bill and a credit card bill, and all the Talking Heads on CNBC say that we can expect a recession any time in the next year, you’re probably feeling a little nervous.
But if you have (let’s say) QYLD, you’re still drawing supplemental income, and in the meantime, you can wait for the market to come back, and you can pick up some QYLD shares on sale during the dip.
The admittedly slender evidence we have from the last nine years suggests that the QYLD share price does slowly drop over the course of time.
A person can pick up shares on dips, or keep a portion of their portfolio in Vanguard total stock market to keep the port folio heading up, or to use proceeds from that to pick up QYLD on dips in the future. At any rate, it is hard to picture a situation where drawing 1.4% in a bear market is better than drawing 12% in a bear market.
Again, you gotta know what you’re doing.
@@completestrangeronline7284 As I already pointed out, this is purely a psychological benefit and is simply mental accounting.
Not referring to its slow decay over time, but rather it dropping with the broader market in a crash.
You still seem to be missing the fact that total return is what's important, not yield per se.
@@OptimizedPortfolio I am not 100% sure what would be wrong with having psychological benefits….
And how long of a period of time are you figuring as you come to the conclusion that total returns are superior? Doesn’t it in part depend on when you retire? What if the new retiree in 2022 has to wait for five years for the superior total return rate? What if he’s dead by then?
And in order to attain superior total returns, don’t you have to keep to a ratio of 4% portfolio withdrawal or thereabouts? Exactly how is a 4% portfolio withdrawal superior to an 11 to 14% withdrawal rate?
You are correct that QYLD or XYLD will drop with the broader market. It is also true that it’ll probably go back up with the broader market, but more slowly.
When you invest in QYLD, you go into it knowing it’s not a growth instrument, right? You know that it’s giving you an opportunity to get income in an up-and-down or sideways market, without having to hand your portfolio over to an insurance company.
So, a person could do total Stock market or s&p etfs while they work, and transition over to partly or all high income dividend yielding funds like QYLD in retirement.
Yes, there will be months where you might get $3000 in income and other months 2400-2500, but that’s life. It’s a whole lot better than being afraid to pull anything out because the market keeps shrinking week over week.
@@completestrangeronline7284 Nothing wrong with psychological benefits; didn't mean to suggest that. They're very valuable for some investors.
Time period is irrelevant to the concept of total return. You seem to be stuck on the idea that yield = SWR. Those aren't the same thing.
For example, suppose my hypothetical 1 share of QYLD has a share price is $100,000, so its 12% yield is $12,000 annually or $1,000/mo. which happens to perfectly cover my expenses. Suppose that share price gets cut in half in a major crash. That 12% yield is now only $500/mo. and no longer covers my expenses.
QYLD is in no way "insurance."
Again, I went over all this already in the video. You may also get something from this blog post I did a while back on dividends, in which I touch on some of the same concepts around total return: www.optimizedportfolio.com/dividends/
I own XYLD for precisely the reason you mentioned in the video - it's my bet on "market will trade sideways" part of portfolio (not much, 20% bought on cheap margin). Meanwhile it's "free" and easily quantifiable money (I can easily see if dividends > interest paid). I fully expect that there will NOT be a huge market crash after recent rally but I'm more and more anxious about upcoming lost decade in the USA and possibility of long bear market. XYLD should hedge nicely against it. And if market keeps rallying - then rest of the portfolio will generate the growth. If it goes down - who cares, I'm in it for the long run, it will recover. If my XYLD shares drop significantly I'll slowly divest from it and buy SPY (I was thinking of selling some XYLD if sp500 drops more than 20% of its ATH and then sell more with each further 10% drop
To be frank, your comment perfectly illustrates the types of misunderstandings and mental accounting that I referenced.
First, view the portfolio holistically, thinking about how each asset contributes to its overall risk/return profile, NOT assets or "parts" in isolation.
Secondly, "dividends > interest paid" means nothing. This is again simply mental accounting. Total return is what matters. Period. If "dividends > interest paid" meant guaranteed profit, everyone could simply construct a portfolio with a yield greater than the margin rate and then continue to borrow ad infinitum and get rich with zero risk, which we know isn't the case.
Lastly, as I also already noted, if you're "in it for the long run," why would you own this fund? It makes even LESS sense for a young accumulator.
Market timing also tends to be more harmful than helpful.
@@OptimizedPortfolio
> This is again simply mental accounting. Total return is what matters
Yep, it is a simple mental accounting. I value the ability to do a simple mental accounting over optimization of artificial Total Return metric - of course it may cost me money in the long run, but I don't mind paying money for something I value
> If "dividends > interest paid" meant guaranteed profit, (...)
But it doesn't. There's a risk, which I accept.
> It makes even LESS sense for a young accumulator.
I'm not a young accumulator.
> Market timing also tends to be more harmful than helpful.
It does, but I don't care. Stock trading is fun and I like fun.
Generally I fully agree - _if_ I wanted to optimize Total Return with the least effort needed I'd go all in in some boring bogleheads funds - which I actually do with vast majority of my portfolio. But where's the fun in that?
@@sakfa1 Investing isn’t supposed to be fun, it’s supposed to help build wealth. If you want fun, go gamble I suppose
@@nvass99 but I like fun and I don't like gamble.
Who are you to tell what it's supposed to be?
The thing is - I have built my wealth already. End game is to have fun and good memories. Seriously, I've seen too many people like that "build weatlh!". Well, don't forget life is one, if you can have fun at a process go for it. It doesn't matter if you die with $3 or $2.5m on your account, you're equally dead.
The point being - you asked for comments of people who invest in this fund, you got a comment of someone who does and instead of acknowledging this you try to convince me I'm wrong. I'm not, I simply have different priorities.
Yes, you are right - for a person who values growth and Total Return not buying QYLD is a good strategy. I'm just not that person.
I'm sorry if investment is not supposed to be fun - then Gods Of Investment must be angry at me because definitely it is fun to me and hell, it's absolutely the best game I have ever played, hooked me up for 2 decades and is worth more than any gaming console or any amount of games could ever do
@@sakfa1 Fair point
Its just a different strategy, qyld is a money printer and I am in ot for 100 shares then bailing. Anyone who dumps 25K for long term growth options is out of their mind. Its a resource pump and that is it.
Thanks for the comment, Josh. Are you using any sort of indicator for when to bail?
Was this vid before or after bond crash? 💥 I think some defunct regional banks would prefer to have been holding only QYLD at this moment.
Not sure what bond "crash" you're talking about. And probably not: www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2023&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=100000&annualOperation=2&annualAdjustment=1000&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=QYLD&allocation1_1=100&symbol2=BIL&allocation2_2=50&symbol3=QQQ&allocation3_2=50&allocation3_3=100
I have seen many videos like this but I’m really curious why people always show qqq and qyld graphs for the last few years and say “see look you would have made way more money if you just invested in qqq instead” the thing is the market has seen a absolutely insane amount of growth in the last 5 years. This year 2022 looks like we are heading into a decline as pretty much everything has been in the red YTD. So my question is do you guys seriously think we will see 135% growth in the next 5 years again? I’m thinking it’s extremely unlikely and I believe these income funds will out perform these growth funds over the next couple of years.
No, in my opinion at least. That's not the important takeaway, as I noted. Can't speak for other people's videos though.
@@OptimizedPortfolio so why does everyone always bring up the graphs and compare how the fund performed vs growth stocks and etfs when like I said we had a record last 5 years in terms of growth? Do you think QQQ outperforms QYLD when the market trades sideways or down for the next 5 years? I just don’t see the logic in how that would even be possible as QQQ is not getting you any income it relies 100% on growth
@@MrSymb0lism Same answer. I don't know; I can't speak for others. I discussed everything you brought up in my video already.
@@OptimizedPortfolio???? You didn’t talk about how each fund performs in a down trend or sideways market? You also didn’t say if you think QQQ is going to be able to keep up that 130% growth over another 5 years but I think we all know the answer to that anyway. It speaks volumes that you can’t even give your opinion on a simple question.
@@MrSymb0lism Once again, it appears you've gotten the wrong takeaways from my video or perhaps didn't watch the whole thing. I noted covered calls would be nice in a flat market and that we wouldn't expect that environment often. I noted I'd prefer to diversify with bonds or even naively use 50% T bills to likely outperform in bear markets. I noted that for long-term investors, a covered call fund makes little sense. I laid out my reasons in detail for these positions. I also noted that it's impossible to predict the future so guessing future returns of the Nasdaq 100 - or any index - is a silly, fruitless exercise; I'm not sure why you're concerned with 1 person's opinion on that anyway. Moreover, I stated in the conclusion that options strategies may prove useful going forward given lower expected returns for both stocks and bonds, at least for some short, unknown time period. Lastly, one's choice of a fund like this should have little to do with whether or not they believe "QQQ is going to be able to keep up that 130% growth" anyway. I also told you I can't speak for the comparisons made by other TH-camrs. I have now answered your "simple question" 3 times, or 4 if you count the video itself, which, again, already contains all these points. Cheers, mate. Best of luck.
Try 7 bil in assets
Oops. Now I'm not sure where I got the $3B figure.