Bond Income Not Enough? Give QYLD a Closer Look | ETF Trends

Despite the Federal Reserve looking to raise interest rates in 2022, rates are still relatively low by historical standards, which is causing fixed income investors to look elsewhere for yield.

“In this period of virtually non-existent bond yields, the search for income is prompting increased interest in junk bonds, exposing investors to more risk,” a CNBC article said. “Meanwhile, stock investors are concerned about the impact of market volatility on their portfolios.”

One of the ways to combat low yields is by tailing the bets of the pros via the use of options.

“The complexities of executing options — contracts for the prospective sale or purchase of specific stocks during a set time period — makes them inaccessible for most individual investors,” the article added. “But over the past few years, a variety of options-based exchange-traded funds have come on the market. This has afforded individuals easy access to various options strategies to produce income, hedge risk or both.”

One ETF Option Worth Considering

Rather than learn options themselves, investors can opt for ETFs that incorporate the strategy, like the Global X Nasdaq 100 Covered Call ETF (QYLD). QYLD follows a “covered call” or “buy-write” strategy in which QYLD buys stocks in the Nasdaq 100 Index and “writes” or “sells” corresponding call options on the same index.

Not only does QYLD provide equities exposure, the ETF also offers an income component. In today’s low-rate environment, fixed income investors understand how difficult it is to try to squeeze as much income as possible out of government debt.

“Option-based ETFs are geared to either hedging (protecting investors from losses in a down market), or providing supplemental income to another investment strategy,” the CNBC article said.

“Options-based ETFs are gaining traction as investors struggle to reconcile high stock prices and historically low bond yields,” the article added. “To that point, inflows into options ETFs so far this year are estimated at more than $8 billion. ETFs designed for hedging alone posted inflows totaling about $5 billion for the 12 months ending Aug. 31 — an indication that many shareholders are using these products for risk protection.”

Summarily, QYLD seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the CBOE Nasdaq-100 BuyWrite V2 Index. QYLD offers investors:

  • High income potential: QYLD seeks to generate income through covered call writing, which historically produces higher yields in periods of volatility.
  • Monthly distributions: QYLD has made monthly distributions for six years running.
  • Efficient options execution: QYLD writes call options on the Nasdaq-100 Index, saving investors the time and expense of doing so individually.

For more news, information, and strategy, visit the Thematic Investing Channel.