QYLD RYLD XYLD: No BS! Only Facts: Dividend Policy, Taxes, NAV Erosion? Global X Covered Call ETFs
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- เผยแพร่เมื่อ 9 ก.ค. 2024
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00:00 Intro
01:57 Indexes the ETFs follow
04:37 Covered Call Strategy and Mission
11:00 Monthly Distribution Policy
19:04 XYLD Discrepancy?
20:12 Performance
23:07 Taxes!
Mission:
Help everyday people invest on their own in order create their own source of Passive Income to enhance their quality of life and reach Financial Independence (FIRE)
DISCLAIMER: The videos and opinions on this channel are for informational and educational purposes only and do not constitute investment advice. Adriano Starinieri is not registered to provide investment advice and as such does not provide recommendations - those looking for investment advice should seek out a registered professional. Adriano is not responsible for investment actions taken by viewers.
#passiveincome #investing #dividendincome #financialfreedom #livingoffdividends
Why would anyone invest in Qyld and Xyld over Jepq and Jepi. The have very similar yields but with Jepi and Jepq you participate in some upside and they write out of the money calls.
I have some investment allocation in QYLD and RYLD but not JEPQ or JEPI. The primary reason for me to choose these over JEPI is "ELNs". I personally don't touch ELNs or funds that have heavy investments in ELNs. JEPI has performed really well in it's short history but I believe these ELN investments will lend to rougher times ahead.
You could use XYLG for 50/50 income and upside. Half the yield of course but you participate in upside as well.
The main problem with QYLD (the most popular of the funds) is that the payment amount never seems to stray too far from $0.20 per share. To ensure your purchasing power isn't eroded over time, by inflation you would have to top up the fund accordingly (costing you more in expense fees for having the same income come in).
Very few funds are inflation protected but try adding a few shares on the dip should help
It works better when you dollar cost average
Very informative video. I have a small position in XYLD. Good to know they still manage to reinvest some of the premium back into the fund despite paying a high yield.
If you look at the tax filings for these funds (globalx Fund Filings and Tax Supplements), you will see that the great majority of distributions in 2022 and in the present are return of capital except in the end of December and the first week of January. It is especially evident for QYLD. I have confirmed this with representatives from globalx and my Fidelity statement confirms this. When capital is returned, it reduces the basis for tax purposes which reduces any gain. given the performance of these funds, I see erosion of NAV since the market doesn't buy some of the explanation above. If these funds return more capital than you have paid in, you pay capital gains tax on your own money. The only upside to this is that with so much return of capital that eventually you have no loss and can get out of these funds. NUSI, which writes protective puts, also distributes only ROC. There is currently no covered call report on the globax site. I also cannot confirm any contention that QYLD has declined less than the NASDAQ. in the past year.
Thanks for the video. I didn't know about the distribution policy with at least half of the option premium reinvested. A lot of videos make it sound like there is no way for the *YLD funds to grow.
There is still no guarantee that the reinvested premiums will be enough to keep the distributions relatively stable over the decades, but this policy at least gives it a chance
Thanks for going out of your way for this one, Adrian. I'm looking forward now for your interview with management.
I'm trying to figure out if XYLD is a "partnership" thereby producing a K-1? Trying to figure out if it's worth holding in a ROTH IRA. Any comments? Thanks.
Great explanation of YLDs.
I am a big fan of the YLD'S and YLG'S
Any thoughts on tylg etf? It's up YTD 26.11%, with a 6% div yield. Thanks for any input.
If the option is "called away" where does the loss get funded (Strike Price $3892 - Price on expiry $4100), does the fund cover this loss from it's cash on hand?
What happens in the case where these funds write options, the option settles at a loss [e.g. the fund collected $1 and the fund bought back the option for $2]? Is the cash reserve used to pay the $1 loss? The excess of the premium collected over premium distributed a) buys shares and b) covers periodic option cash out losses? Or all the excess is invested in new shares...then when an option is bought back at a loss...shares are sold to cover the loss? Thanks!
An option cannot settle at a loss . Either it gets exercised or it doesn’t .
At the worst, it settles at the money when written aggressively, so I disagree with your assessment. And at the mlney, the premium was at its best too
Many people doing their trade on a taxable account, investing on income ETF’s but do not invest in REIT’s. I want to include some REIT’s on my taxable portfolio, but want to learn more on tax implications. Aren’t short term capital gains, income ETF’s like JEPI, and REITS tax the same? Thank you for responding.
Don't forget BDCs and junk bonds too
Great, great video! Your explanations are crystal clear. I have 11,86% in HYLD, 0,63% in QYLD and 0,37% in RYLD because I had those two last one before HYLD went on the market. I still keep them because it gives me 10% distribution. 😁
So in this video you said that they write a call option on the s&p index, just wanted to clarify are they using an ETF of the index and writing that call on an ETF?
you can see it for yourself in the holdings. its on the index itself (SPX = SP500 index - NDX = NASDAQ100 index)
@@PassiveIncomeInvesting interesting, didn't know that someone could do that on the index itself. Thanks for the reply.
@@Alternativedwellings One thing I do not undestand: if the call is executed in the case of a stock, you have to sell the stock at the strike price, but in the case of an index, what do have to sell exactly? 🤔
@@jacquesfournier4616 I thought they said they pay it out in cash which is why they keep a large cash reserve in the fund and of course if it was a lot of money they would have to pay out some from the premium they collected.
@@jacquesfournier4616- You just pay the option buyer the difference in the index price at the time of exercise and the strike.
From my listening while scrolling through Zillow - If they are making 3% and distributing 1% you shouldn't DRIP during volitile markets to achieve a better share price if you don't enjoy share price fluctuations?
Very well done!
Good one.
Thanks Adrian for making this video to walkthrough how these funds work! Now I can definitely explains this to someone else and pretend to be an expert. 😁
Simply strategy and works best during a down market. 9 years of distribution for a total of $21! So, even if someone bought at the all time high of $25.80 or something 9 years ago, that person did not lose any money. Can you imagine for a growth investor who bought something for $25.80 9 years ago and today it is only worth $17? Oh boy, do not want to be in that situation.
Another example to show that share price does not matter for us PIIs. 😄
A growth investor would've bought the QQQ counterpart. QQQ would've 4x in the same 9-year period. Share price doesn't matter?
@@bentobox7788 and receive virtually no income for those 9 years. PII wants to get paid now, not later. So, yes price does not matter for PII, but if growth works for you, do it. There is more than one way to cut the cake 🍰.
Great video ! Can you discuss Nav erosion with TSLY ? Thanks
there is no NAV erosion... it just follows Tesla stock price. what you should be really asking is why Tesla shares go up and down
Don't they use part of the retained cash to settle the call options when the calls get exercised?
How do they reinvest the other half of distribution
find out in the Q&A out next
Is it okay to build up shares overtime so that in the future you have a good stream of incomes, or is it better to lump some into the position?
I would find a better investment.
Thank you 💯 🤑
Another brilliantly informative video. And yes, us guys are luck we know you!
Can you count "return of capital" as income? I understand the rationale in a bear market but then I wonder why anyone would buy the covered call. In a bull market it seems like these guys could lose their shirt. I am invested in a number of these covered call ETFs in Canada and although I am receiving good dividends I have definitely lost on my original investment. I'm hoping this will turn around when the market improves. But essentially you don't want to pay anything more than the NAV in terms of a share price.
yes ROC is income, some might disagree but math is math ... its income
Can you explain why QYLD is paying out ROC if it is generating more option premium that it pays out in every month?
Because ROC is a tax mechanism, some forms of income are designated ROC. Not all ROC is eroding the NAV, some of it is driven solely by the tax rules.
The income generated from writing covered calls is classified as a capital gain, not a dividend. When they pay you your share of the option income, it is therefore a 'return of capital' because they could have used the money to buy more shares instead of 'returning' it to you. The same rule applies in Canada. If you write your own options, the proceeds are capital gains, or as in my case, usually capital losses 😂🥲
edit: I forgot to mention that you have to keep track of your ACB - adjusted cost base - for any ETF or fund that has ROC. My broker doesnt do this for me automatically (I'd like to know if there is one that does!) so it can be a pain in the butt when/if you sell.
@@sandor2960 Thanks!!
Which broker you with ? Most do it in Canada
Is the return of capital adjustment done once a year or per month? I seem to remember some weird transactions appearing at year end and I wonder if this is what they were?
its done once a year automatically by your broker (typically) but it can depend on your broker
thank you
Reinvested minus management fees.
Do you know if Covered Put strategies exist?
yes but they are not as prevalent as calls. or you can find finds that do both, but not as popular
Hello Adrian, I noticed that main book cost got reduced for a lot of my investments. is that normal? Thanks
yes that is your ROC ajustment
@@PassiveIncomeInvesting ow. Thanks what is it and how it works?
Why do people dislike these stocks so much? If you just reinvest the dividends it apples DCA. Therefore, you get more and more with equal balance. All I hear is losses.
because they don't understand them
I don't get it either.... If the price lowers it means your reinvested dividends can purchase more shares quicker which creates more dividends
Thanks for sharing. Great info. Thank a lot 👍 ❤️ 👍
We’ve been off the global x funds for about two years. Jepi, jepq and svol have been a better choice for us. Everyone has a opinion
glad its working out for you!
its better to figure out taxation on this product. with 100% foreign income on 2021, i could only imagine my tax bill
still lower than your employment income hehe
One of the best explanations of Global CC ETFs. Keep up the great work!
I didn't see you do NAV Erosion
He addressed it by stating that they don’t pay out 100% of the option premium they receive. They reinvest the rest into more shares. If they paid out 100% of the option premium and then write at the money call options on 100% then it would eventually go to zero. They combat this by only paying out a portion of their premiums received and reinvesting the rest
@@iptvclub1575 ok
@@iptvclub1575yep. Two different ways of calculations and that is one
XYLD is a good fund for income.
Since QYLD's monthly distribution isn't consistent anyway, why not invest in QQQ and sell x% each month? Don't have to decide when, what, or how much to sell. It's QQQ, same day each month, and same percentage. The income is inconsistent like before but at least the expected future income is higher.
I gave up on these yld. I lost on all of them. Total waste of money getting involved in them.
How can you loose? There is no loss until you sell
If you have a return of capital dividend does that reduce the amount of shares you originally purchased?
No. Not in the US anyway.
Receiving a distribution always reduces the value of your shares, but not the number of shares.
@@bentobox7788 ROC reduced the tax cost base of your shares, not necessarily the value of the shares.
@@danjennings4700 It does affect the value of the shares. Receiving distributions is like withdrawing from your bank account. The balance is deducted by the same amount. On every ex-dividend date, there are 2 closing prices. One is the closing price at close, and the other is the adjusted closing price after distribution. The adjusted closing price is always with distribution removed.
@@bentobox7788 I was referring to ROC, not necessarily a distribution. Remember that ROC is a tax allocation; certain types of income (especially in covered call ETFs) are classified as ROC for tax purposes. I agree that sometimes an ETF is simply paying out a distribution that the ETF hasn't earned as income (which is also called ROC), and that is not a good thing in that the ETF is drawing down its NAV and not replacing it with income. However, not all ROC is the latter, sometimes it is just the tax allocation I refer to above.
Get to the point quickly. Don't make it like an exam answer where you want to drag an answer to fill the page.
Whoever bought QYLD at $25 or $20 are in bad positions. Both principal and income go down. Remember income investment is rarely for reinvestment of dividends.
i would disagree, people who buy QYLD for income are getting income every month.
@@PassiveIncomeInvesting Soon those ETFs will be folded and new ones are open. And the cycle continues
QYLD’s expense ratio is too high. That’s the real problem.
0.6 is high? perfectly reasonable for a covered call strategy. there are lower cc etfs out there for sure
the most aggressive isn't at the money, its in the money!
Why is QYLD down more than its index ?
cc etfs on tech stocks are a double edge sword. Income is great, capital appreciation not so good generally, however it depends on a person’s investing style
With the sizable reinvestment of the covered call premiums the share price should have done better than the index
because between 2014 until now, the market was much more bull than bear. simple . the future? who knows...
I understand why it lags in a strong bull market but why in the last 16 months of a bear market is it lagging the index
You won't lose money in QYLD if you buy low and sell high.
Lol
its really not designed for that, might as well do that with QQQ
@@PassiveIncomeInvesting QQQ is not designed for income. The question was will you lose money with QYLD. This year one could have bought QYLD > 15.
I think the real concern is: what happens when the fund goes to zero?
Yes, the return is paid out in distributions and that means, over time, the share price declines.
What happens when the share price goes to zero because it all has been paid out?
Find a new fund, I guess.
They only write calls each month on 1 percent of the NAV
This is why the Nav increses when the nasdaq goes up. Not as much but quite a bit
Risk
Ok so they pay out less than they make and it gets reinvested then at the end of the year we have gotten premium capital gain. Wow different since august 20
what I was told. Thanks for clearing it up.
Keep it in a retirement account . No taxes
At the end of the day performance speaks for itself. These three funds have underperformed in almost every type of market. And my guess is they will continue to underperform especially when we enter a new bull market. My question is, why do we keep pouring money into them when there are so many better funds, ETFs and stocks out there? Stop defending the ones that don't perform and simply invest in ones that do
Depends on what you want from your investments. Based on what I want - XYLD and RYLD beats some other funds I have. Have not checked QYLD but Im still buying as it meets my ivestment goals. We all have different goals in our investments. Good luck.
this is the income channel buddy, not the total return channel. if it was the total return channel i would just advise everyone to put their money in the SP 500. Performance is not everything. that is what people do not get. if it was nobody would invest in bonds, or pref. shares. etc etc.
You need to look at total returns with dividends paid out. Not stock price growth returns. These funds are not meant for growth, they are meant for income. So the dividend income needs to be taken into account for the total performance.
Any thoughts on opp
Thanks as usual Adriano!
You understand it well; you explain the problem poorly: too talky.