qyld etf

QYLD ETF Review: Global X Nasdaq-100 Covered Call ETF

Investment objective

QYLD is a passive index ETF that uses a covered call strategy to enhance yield and lower volatility. The fund was created by Global X and tracks the Nasdaq 100. The manager follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the Nasdaq 100 Index and “writes” or “sells” corresponding call options on the same index. This post is available in Video format!

Covered call ETF usually protect against downside risk. This being said, the covered call strategy provides limited downside protection. Also, when you write a covered call, you give up some of the stock’s potential gains. Covered call ETFs will tend to have a higher yield and a lower performance (in bull markets) than the portfolio they track.

Updated daily – QYLD ETF

Is QYLD a good investment?

Positives

  • Attractive yield thanks to money earned issuing call options;
  • Lower volatility than investing in a NASDAQ 100 ETF such as QQQ;
  • Suits conservative investors and income seekers;
  • High volatility usually increases the premiums earned by the fund;
  • Saves you time and effort (if you were youself intesreted on writing call options in the NASDAQ 100;
  • Liquidity: the fund has over 6 Billion dollars assets under management.
Volatility comparison: QYLD has a lower volatility than the NASDAQ 100 (source of graphic: portfoliolabs.com)
In bear markets, QYLD protects investors and in normal circumstances will offer a better performance than the NASDAQ 100. The graphic depicts growth of 10K invested in the past 6 Months

Negatives

  • Poor performance. You are essentially giving up on the upside potentiel of the NASDAQ 100;
  • The strategy of covered calls becomes ineffective in an unpredictable market;
  • QYLD is dominated by Tech firms so it’s far from being a diversified inevestment;
  • High fees (0.60% total expense ratio).

Performance comparison QYLD vs QQQ

ETFDiv
Yld
QYLD12.53%
QQQ0.71%
Source: Yahoo finance – QYLD ETF

Is QYLD Sustainable? What is the risk of QYLD?

In my opinion, the dividend are not sustainable for one obvious reason: the primary source of dividend with QYLD is options’ premiums. Options by nature are volatile and their value depend greatly on market sentiment.

Is QYLD a monthly dividend

Yes, QYLD offers a monthly dividend distribution.

QYLD ETF Holdings

Net Assets (%)Name
12.90APPLE INC
10.67MICROSOFT CORP
6.34AMAZON.COM INC
4.67TESLA INC
3.70ALPHABET INC-CL C
3.66META PLATFORMS INC
3.52ALPHABET INC-CL A
3.44NVIDIA CORP
1.97BROADCOM INC
1.95COSTCO WHOLESALE CORP
QYLD ETF

Why covered call ETFs are popular?

Covered call ETFs are very popular with American investors. Some of these ETFs managers have billions of dollars under management. Two reasons push investors towards covered call ETFs:

High dividend yield: thanks to the premiums earned when writing call options, the manager under certain conditions can earn premiums and enhance distributions;

Low volatility. Writing a call option is a conservative strategy aimed at reducing volatility;

Great for passive income: if you’re main objective is to achieve high dividend yields and build passive income, then covered call ETFs are a good option. But, remember the high dividend yield comes at a price which very low growth potential.

Practice example: covered call strategy