What to Know About YieldMax ETFs

YieldMax ETFs are designed to generate income through dividends and interest, making them a popular choice for investors seeking regular returns.

The primary goal of YieldMax ETFs is to maximize returns through a combination of dividend-paying stocks and other income-generating assets.

These ETFs typically hold a diversified portfolio of stocks with high dividend yields, often exceeding 4% per annum.

Investors can expect to receive regular dividend payments, which can be reinvested to further boost returns.

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ETFs are funds listed on the public market that combine T-bills and options to produce income and upside potential from stocks and stock baskets, many of which do not have high dividend yields.

YieldMax ETFs are a type of ETF that uses a strategy called "credit call spreads" to convert stock price volatility into high income, modest price upside, and some degree of downside protection.

These funds are a relatively new product line, launched through a collaboration between Tidal Investments and ZEGA Financial, with over 30 funds available just two years after the initial launch of a Tesla-based ETF.

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ETFs, or exchange-traded funds, are a type of investment product that allows you to own a small piece of a larger portfolio of stocks, bonds, or other assets.

They are listed on public markets and can be easily bought and sold throughout the day, unlike mutual funds which are only traded once a day after the market closes.

ETFs can combine different types of investments, such as T-bills and options, to produce income and upside potential from stocks and stock baskets.

This is exactly what YieldMax ETFs do, by using a strategy called "credit call spreads" to convert stock price volatility into high income and modest price upside.

YieldMax ETFs are a relatively new product line, launched just two years ago, and now include more than 30 funds.

They are designed to provide a high level of income, modest participation in price upside, and some degree of downside protection, making them a potentially attractive option for investors looking for a more stable return.

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ETFs, or Exchange-Traded Funds, can be a bit complex, but I'm here to break it down for you. An ETF is a fund listed on the public market that combines different investments to produce income and potential for growth.

One type of ETF is the YieldMax ETF, which combines T-bills and options to generate income and upside potential from stocks and stock baskets. This is a clever way to create a fund that can provide returns even when stocks don't have high dividend yields.

Let's take a look at a specific example of a YieldMax ETF, the YieldMax Gold Miners Option Income Strategy ETF (GDXY). This fund is actively managed and seeks to generate monthly income by selling call options on the GDX index. The goal is to harvest compelling yields while still participating in the price gains of GDX.

Here are some key details about the YieldMax Gold Miners Option Income Strategy ETF (GDXY):

Note that the 30-Day SEC Yield represents the net investment income earned by the fund over a 30-day period, expressed as an annual percentage rate. This is an important metric to consider when evaluating the performance of an ETF.

As with any investment, it's essential to understand the risks involved. The YieldMax ETFs, in particular, use derivatives, which can pose additional risks beyond those associated with direct investments. Additionally, the Fund is a relatively new entity, and prospective investors should be aware of the lack of operating history.

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YieldMax ETFs work by combining three investments: U.S. Treasury Bills, which make up more than 80% of the ETF's value each month, and two options - a call option and the sale of a call option.

The call option is "out of the money", meaning the fund can benefit from future price appreciation in the target stock, if any.

The sale of a call option has a strike price between 0% and 15% of the current stock price, limiting the upside in the stock but providing a handsome income payout each month.

U.S. Treasury Bills are used as a backing for the options strategy, replacing expiring options with newer options contracts each month.

Depending on the ETF and market conditions, YieldMax ETFs may also use other option strategies, such as selling put options, which obligate the holder to buy the underlying stock at a future price typically below the current price.

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The expense ratio of YMAX ETFs is a significant consideration, especially when compared to industry standards. Typically, these ETFs have an expense ratio of 0.99% of assets, which is just under the 1.00% rate that many investors screen for.

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However, not all YieldMax ETFs have this low expense ratio. YMAX has a high expense ratio of 1.28%, indicating higher-than-average management fees.

This higher expense ratio is a key factor to consider, especially given the risks associated with the fund's complex fee structure and capped upside from covered call strategies.

YieldMax ETFs have attracted a lot of attention in their first two years due to the popularity of the Magnificent 7 stocks like Nvidia, Microsoft, Tesla, and Meta.

One of the main reasons for their popularity is the increasing demand for income from Baby Boomers who are retiring or shifting from growth to income in their investment objectives.

The Magnificent 7 stocks, which include Nvidia, Microsoft, Tesla, and Meta, have been a major draw for YieldMax ETFs.

Baby Boomers are a significant demographic driving the demand for income from YieldMax ETFs, with many retiring or adjusting their investment goals.

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Portfolio diversification is a key consideration for YieldMax funds, with some allocating among stocks and others focusing on a single stock.

The use of T-bills and options can act as a potential risk modifier for single-stock portfolios.

While it's possible for investors to create and manage their own diversified portfolios, there are variables each month based on market volatility.

A call spread, which involves a combination of call options, is a nice match for the ETF package.

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Understanding the asset allocation of a YieldMax ETF is crucial in determining the potential risks involved. This involves breaking down the fund's components and how they interact with each other.

Investors need to consider the combination of features, benefits, and risks to ensure the fund fits their needs. The best thing investors can do is to understand the different parts of the fund's asset allocation, how they work separately and together.

The extent of the risks associated with YieldMax ETFs depends on the individual's investment goals and risk tolerance.

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The YieldMax funds with the lowest performance over the past 12 months are a concern for investors. These funds have struggled to deliver returns, making them a riskier choice.

According to the data, the 3 Worst YieldMax Performers had total returns of less than what was expected. This is highlighted in the list of worst performers by total returns over the past 12 months.

Investors should be aware of these underperforming funds and consider their options carefully. It's essential to weigh the potential risks and rewards before making a decision.

The list shows that these funds have not been able to keep up with the market, resulting in lower returns for investors. This is a key consideration for anyone looking to invest in YieldMax funds.

Understanding the asset allocation of a YieldMax ETF is crucial in determining the extent of its suitability for your investment portfolio.

To effectively manage risks associated with YieldMax ETFs, you need to break down the fund's asset allocation into its individual components and understand how they work separately and together.

The combination of features, benefits, and risks of a YieldMax ETF can only be assessed once its asset allocation is fully comprehended.

The Drawdowns Chart is a valuable tool for investors to understand the potential risks involved in investing in the YieldMax Universe Fund of Option Income ETFs. It displays portfolio losses from any high point along the way, giving you a clear picture of the fund's performance during downturns.

A drawdown of 12.78% occurred on Aug 5, 2024, which is the largest reduction in portfolio value due to a series of losing trades. This drawdown lasted for 60 trading sessions and took 75 trading sessions to recover.

The chart shows that drawdowns can be significant, but also relatively short-lived. For example, a 3% drawdown occurred on Feb 16, 2024, and was recovered just one day later.

Here's a breakdown of the maximum drawdowns of the YieldMax Universe Fund of Option Income ETFs:

The current drawdown of the YieldMax Universe Fund of Option Income ETFs is 4.24%, which is significantly lower than the maximum drawdown of 12.78%.

I've lost count of how many investors have been lured in by YMAX's massive distribution yields, only to be disappointed by its performance.

Equal weighting is one of the key issues with YMAX, which can lead to inconsistent results. This approach can be particularly problematic during times of market volatility.

High costs are another significant drawback of YMAX, which can eat into investors' returns and make it harder to achieve their financial goals.

Investors should be aware of these shortcomings before jumping into YMAX, as they can have a significant impact on their overall investment strategy.

Traditional ETFs are not new to the investment scene, but they can be limiting for income-oriented investors.

They often focus on dividend-paying stocks, which can be a challenge in today's low-yield environment.

A traditional ETF might not provide the potential return that investors are looking for, especially when it comes to lower yield and no yield stocks.

However, YieldMax ETFs offer a different approach that can be more appealing to income-oriented investors.

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Traditional ETFs are a type of investment vehicle that tracks a particular market index, sector, or asset class. They offer a way for investors to diversify their portfolios and gain exposure to various markets without directly buying individual stocks.

One of the main advantages of traditional ETFs is that they can provide broad market exposure, allowing investors to spread their risk across a wide range of assets. Traditional ETFs are often less expensive than actively managed funds.

YieldMax ETFs take a different approach by applying call spread investing and trading to single stocks, but traditional ETFs stick to tracking a specific market index or sector. Traditional ETFs typically have lower fees compared to actively managed funds.

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When comparing traditional ETFs, it's essential to consider their performance over time.

The best-performing YieldMax funds in the past 12 months have achieved significant total returns, with some funds showing impressive gains despite being relatively new.

These funds have managed to outperform others in their class, with a total return that includes both price increase and dividends, without dividend reinvestment.

To get a more detailed comparison of different YieldMax funds, you can use the DRIPCalc PRO stocks comparison tool, which provides a side-by-side analysis of two stocks or ETFs over various time periods.

This tool offers a range of performance metrics, including total returns, dividends, earnings, expenses, buybacks, EPS, P/E ratio, and dividend-oriented ratios.

With the DRIPCalc PRO membership, you'll get access to all reports and performance metrics, while non-members can still compare stocks and get reports, but with some limitations.

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