YieldMax Magnificent 7 Fund of Possibility Revenue ETFs (NYSEARCA:YMAG) is a portfolio technique that consists of every of YieldMax’s possibility revenue methods, overlaying the person names inside the Mag7. The gathering of single-name, actively managed choices methods is meant to offer traders an funding automobile that collectively owns an curiosity in every of the seven constituents. The aim of the technique is to offer revenue to holders of the ETF by investing within the actively managed single-name choices methods and to offer a collective and “diversified” funding automobile. Given each the revenue element and publicity to the Mag7 firm cohort, I like to recommend YMAG with a HOLD ranking with a 2% allocation goal in tax environment friendly portfolios.
Mechanics Of YMAG
YMAG is the gathering of YieldMax’s single-name revenue methods that covers the whole lot of the MAG7 cohort. Much like the holdings in YMAG, the ETF doesn’t instantly put money into equities and solely invests within the portfolio firm’s ETF methods that comprise the Mag7. This contains Amazon (AMZY), Apple (APLY), Meta (FBY), Google (GOOY), Microsoft (MSFO), Nvidia (NVDY), and Tesla (TSLY). Along with this, YMAG holds a small place in money and cash market funds.
The portfolio holdings’ main goal is to offer revenue by means of managing short-short and short-long, and sometimes long-long and long-short choices methods so as to generate revenue for traders. The person portfolios oftentimes handle straddle choices positions across the underlying’s worth so as to generate revenue. From there, extra returns are returned to holders of the ETF by means of month-to-month distributions that may oftentimes thwart revenue realized by means of mounted revenue methods.
One of many largest dangers related to investing in these methods is the potential tax burden on account of the high-income element. That is primarily why I like to recommend using a tax-efficient retirement account should you elect to put money into such a method.
YMAG’s ahead distribution price is 37.25% at $0.5761/share. Given the brief lifespan of YMAG, I like to recommend reviewing the historic price throughout the constituents, as they might range considerably from month-to-month. YMAG’s distribution has been as little as $0.4306/share and as excessive as $0.6773/share.
With the high-income element comes a comparatively excessive charge of 1.28% gross expense. The gross expense ratio is made up of a 29bps administration charge and a 99bps acquired fund charge and expense. The acquisition fund charge is the cumulation of fund charges related to investing in YieldMax’s single-name firm ETFs.
When contemplating the funding technique, I imagine it’s prudent to weigh one’s threat tolerance because it pertains to the underlying choices methods and focus threat associated to the Mag7 tech names.
By way of worth efficiency, YMAG is extremely correlated with the Invesco QQQ Belief ETF (QQQ) NASDAQ Index, as depicted beneath. Given the excessive correlation between the 2 ETFs, I imagine that YMAG affords a extra compelling funding alternative for these in search of publicity to the index and revenue. Because it pertains to the NASDAQ, the highest 10 constituents make up 49.79% of the portfolio weight, suggesting vital focus and directional pull by the highest 10 names. Given this issue, I imagine that an investor can understand related worth returns by concentrating down their technique to the Mag7 with the additional benefit of revenue. For reference, I included ProShares UltraPro QQQ ETF (TQQQ) to offer a unique perspective for leveraged portfolios.
Market Outlook
I not too long ago reported on ProShares UltraPro Brief QQQ ETF (SQQQ) with a sturdy outlook available on the market. For essentially the most half, I imagine that sturdiness will stay within the hyperscalers and AI-related tech shares that cater to enterprises for automation and operational effectivity. One issue that’s talked about in my report is that buyers have been tightening their grip on spending, allocating extra of their incomes to staples over discretionary, a theme that I’ve remained in keeping with for all of 2024. Given the heightened degree of inflation and regardless of the slowing of the speed of development, I imagine shoppers on the low-to-mid-income bands will stay pressured by increased prices as they pertain to the day-to-day value of dwelling.
This features a deal with housing, meals and beverage, insurance coverage, electrical energy, and gasoline. Although these components don’t essentially instantly affect the Mag7 by way of enterprise spend for information consumption, storage, and different tech-related spending, I do imagine the overall financial sentiment could play an even bigger position within the course of the index. Because of this, I like to recommend warning when investing in YMAG because the ETF is closely correlated with its respective index and should expertise a sharper flip given the underlying choices methods.
Along with this, there are two main occasions on the horizon which will affect volatility. First, the September 18, 2024 Fed assembly that may set the course of the Federal Funds Charge. Secondly, the November 5, 2024 Presidential election. As mentioned in my report overlaying SQQQ, economists are leaning in direction of a price lower following the September Fed assembly, which, I imagine, will drive worth appreciation within the NASDAQ Index.
If the Fed decides to maintain charges stagnant, I imagine the market could expertise a heightened degree of volatility which will push down the NASDAQ Index, which can in flip affect the worth of YMAG.
Although presidential elections aren’t essentially catalysts for course available in the market, I imagine volatility shall be heightened on account of the occasion. The next degree of volatility could affect the underlying ETF holdings in YMAG given the short-straddle choices methods throughout the underlying ETFs. This may occasionally have the power to affect the underlying belongings, and in flip affect the worth of the portfolio.
YMAG has a comparatively low degree of buying and selling quantity available in the market, with a median of 284k shares altering arms. This may occasionally affect an investor’s capacity to purchase or promote their positions within the occasion of a extremely risky market.
Conclusion
YMAG is an income-generating portfolio technique that focuses on the Mag7 corporations, holding YieldMax’s respective income-generating ETFs. Given the excessive degree of correlation with the NASDAQ Index, I imagine that YMAG can supply traders related worth returns with an extra revenue element. Given the brief lifetime of the technique, historic distributions could not present an correct studying on efficiency and is probably not mirrored in future intervals.
For traders in search of publicity to the NASDAQ Index and revenue, I like to recommend YMAG with a BUY ranking with an allocation of two%. Given the volatility threat on account of the September Fed assembly and the November election, I like to recommend easing into the place as these two occasions could also be catalysts for heightened volatility.