My screens are giving a green light to the Nasdaq and, for our purposes, there are a few high-yield vehicles to tap. The Global X Nasdaq 100 Covered Call ETF (QYLD) is one of them, offers up analyst Bryan Perry, editor of Cash Machine.
The road ahead for the broad market has shifted to one where the glass is more full, rather than the overwhelmingly negative tone that smothered the market in late December. But the ability of the market, led by the Nasdaq, to continue to rise on a rapidly shifting view of inflation is wholly encouraging.
As for QYLD, the fund follows a “buy-write” (also called a covered call) investment strategy in which the fund buys a stock or a basket of stocks and writes (or sells) call options on the Nasdaq-100 index. QYLD seeks yield from the Nasdaq-100 via options premium.
Historically, investors came to the Nasdaq for growth, not yield. While that dynamic may be shifting as tech giants mature and begin paying dividends, the fact remains that pure-play S&P 500 funds offer more yield than the “plain vanilla”’ Invesco QQQ Trust (QQQ). Enter QYLD, which matches QQQ’s Nasdaq-100 exposure, but again, earns income by selling call options and passes it on to investors net of fees.
Covered call ETFs are hardly new, but QYLD was the first to apply it to the Nasdaq-100. Expect a generally less volatile return pattern from QYLD relative to QQQ. The fund uses this strategy to enhance its portfolio’s risk-adjusted returns, reduce its volatility, and generate monthly income from the premiums received from writing the call options.
Simply, the fund invests in individual stocks and then sells calls on the Nasdaq-100 Index, which has enabled its monthly payout with a stated annual distribution yield of 13.06% recently. The top 10 holdings make up around 50.48% of the fund’s total assets that stand at $6.72 billion. The fund owns 104 positions in all, but clearly there is a huge weighting in those stocks that are driving the Nasdaq higher.
Shares of QYLD recently traded around $17 and should continue to grind higher in correlation with the underlying Nasdaq index while continuing to pay out a double-digit-percentage yield on a monthly basis. These attractive features make for a nice addition.
Recommended Action: Buy QYLD under $18.
