This New High-Yield ETF Holds a Lot of Promise

ETFs
by Tim Plaehn
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For my ETF Income Edge service, I meticulously review the relatively new class of high-yield option strategy ETFs to unearth the most promising ones for my subscribers. The sheer volume of new funds being launched each week is a testament to the rapid growth of this sector. Consider the following.

These hot offerings are known as covered-call or derivative-income exchange-traded funds. According to FactSet, funds in this category held $87 billion as of July 17, compared with $8 billion at the end of 2020. The number of funds in the group rose from 14 to 93 over the same period.

Each new fund will have what it hopes to be a unique and successful investment strategy. Most strategies focus on ways to employ options to enhance returns and income. When any new fund is announced, I pour over the marketing materials and dig through the prospectus. When a fund sponsor comes up with something new, I get excited.

Launched on July 22, the Kurv Technology Titans Select ETF (KQQQ) really did devise a strategy quite different from the typical covered call ETF. This ETF fact sheet describes the strategy.

After reading the prospectus and looking at the current fund holdings, it appears that the fund managers apply a dual strategy. Stocks rated as momentum plays remain uncovered from selling call options. Uncovered stocks from the portfolio include Adobe, Inc. (ABDE), Netflix (NFLX), and Tesla (TSLA).

The other strategy involves employing covered call strategies on other tech stocks. Kurv has a suite of single stock covered call ETFs. Here is the list:

The KQQQ prospectus states that the fund can invest in these ETFs to get exposure to the applicable tech stocks. However, the current holdings list does not include any of these single-stock ETFs. It holds the listed stocks directly and sells call options (or not) on each of them.

It typically takes three to six months for a new ETF to establish a track record that can be analyzed. I’m optimistic that KQQQ will deliver an appealing blend of capital gains and dividend income. Only time will tell, but I’m hopeful.er year from this ETF, a potential for high returns that should give you hope for your investment.

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Author: Tim PlaehnTim is the lead investment research analyst for income and dividend investing at Investors Alley. He is the editor for The Dividend Hunter, an investment advisory focused on creating a high-yield income stream and it's companion service The Dividend Hunter Insiders, Weekly Income Accelerator, a covered call trading service, and for investors looking for long-term total returns from their income investments using stocks with ever-growing dividend payments, he offers Monthly Dividend Multiplier. He co-edits POWR Income with Jay Soloff. Prior to his work with Investors Alley, Tim was a stock broker, a Certified Financial Planner, and F-16 Fighter pilot and instructor with the United States Air Force. During his time in the service he was stationed at various military locations in the U.S., Europe, and Asia. Tim graduated from the United States Air Force Academy with a degree in mathematics. In his free time he tours the United States parks, campgrounds, and wilderness areas in his travel trailer.
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