ETF Palooza

The YieldMax TSLA Option Income Strategy ETF (TSLY) writes covered calls on Tesla Stock. It is one of the newer covered call funds with an absolute whopper of a payout. Since listing in late 2022, the price has gone from $20.06 to $9.14 and has paid out $10.08 in "dividends." TSLA common is up 10% in the same period. There will be a 1 for 2 reverse split later this month. Portfolio visualizer puts the CAGR for TSLY at -16.94% through January 31 versus a decline of 3.27% for the common which again is through the end of January the 10% gain cited is per Yahoo and is more current. 

This is not a great outcome so far but a point we've talked about frequently. If you're going to dabble in this space, spending all of the payout is very possibly a path to zero. In a scenario where depleting an account is the plan that may not be so bad but it will be challenging for this type of product to keep up with the payout. Maybe some of the broader index funds that do this will have a better chance, they should have a better chance because the payouts should be smaller but it is too early to draw that conclusion. These are interesting to be sure but I would keep any allocation very small and I would plan on reinvesting most of the dividend. 

Bloomberg TV had a brief segment on State Street model portfolios. From that link, then click on the fact sheet to look under the hood of the models and get performance information. Consistent with what we talked about yesterday, the models have tended to lag in years the benchmark was up a lot and do better in down years for the benchmark. In 2020 they outperformed in an up year. 

They use broad based funds only and the result seems pretty good. The lag might be by design or maybe the lag simply caused by the Magnificent 7 effect as not too many things kept up with the S&P 500 last year without huge exposure to those 7 names. 

Here's a fun one.

ZZZ is brand new and is 75% S&P 500, 25% Bitcoin futures, MAXI is a Simplify fund that owns Bitcoin futures and sells options spreads on index ETFs and actual indexes while sitting on a bunch of T-bills. SPBC is another Simplify fund that leverages up to own 100% of the S&P 500 and 10% of the Grayscale Bitcoin ETF (GBTC). I didn't find any mention of whether SPBC would switch from Grayscale to one of the cheaper, new Bitcoin ETFs. Grayscale at last check was charging 1.50% versus about 20 basis points for most of the new funds. 

MAXI is "designed to be a capital efficient way to simultaneously invest in Bitcoin and potentially generate significant income." 

Longer term, MAXI tracked Bitcoin sort of closely but started to separate last March some. The chart is distorted because the fund had a large payout in December and for whatever reason, Portfoliovisualizer doesn't have the fund in its database. It pays out 15 cents in most months but both Decembers that it has existed it paid larger distributions that I assume were capital gains, including a $4.18 payout in December 2023.

MAXI is interesting enough to try to learn a little more. The fund seems very risky, buying Bitcoin and selling volatility. Each strategy has had blow ups in the past and if in some scenario they both blew up at the same time I would guess the fund would get hideously crushed. It can still be interesting though, but with the others, I'm not sure why you wouldn't just keep it simpler and buy a "plain vanilla" Bitcoin ETF. 

Earlier this week, the Calamos Alternative NASDAQ & Bond ETF (CANQ) listed. It's a multi-asset fund that isn't so easy to dissect. At a high level, the fund has a fixed income portfolio comprised of ETFs and buys call options to replicate the equal weight NASDAQ 100. The prospectus talks about trying to "deliver a convertible security-like exposure." Calamos specializes in convertibles so maybe the fund replicates convertibles but the word "replicate" is not in the prospectus. 

I called into Calamos with questions. The target allocation is 90/10 fixed income/NASDAQ 100 equal weight. I asked if the fund is leveraged or capitally efficient and the person didn't think so but I don't believe he was certain. Neither the terms leveraged nor capitally efficient are in the prospectus. 

I tried to drill down on the value of the options in nominal terms versus notional value. For example, as of yesterday the fund was long one March 2025 call on Adobe with a strike price of $711 with the stock just under $600. The value of the call was $5011.70 but that $5011.70 is controlling 100 shares of stock. There are quite a few different options like this in the fund. Adding up the notional value of the shares controlled is almost equal to the fund's entire AUM. I very well might be looking at this incorrectly in thinking the fund is leveraged up but if I am wrong, it would have been nice if they could have told me that. 

I wrote this post on Friday 2/16 when the NASDAQ was down 0.82% and CANQ dropped 0.95%. Most of the fixed income funds in CANQ were down a little so maybe today as a microcosm, the fund does layer a complete NASDAQ replication on top of a diversified fixed income portfolio?

The big theme with all these funds is extreme complexity. They are all interesting and if they work, big if, then there is appeal but that is true of most complex strategies, if they work. Unfortunately, there have been many complex funds that sound good that haven't worked. Some flamed out spectacularly or some were just meh, added no value even if they didn't destroy capital. 

It is a lot of fun to look at all of these but I would only use them sparingly, if it all. The ones that you do use, you should be able to really dial in what it does, what could go wrong and then quantify the impact on your portfolio if there is a terrible outcome. Buying Bitcoin and selling volatility, repeated for emphasis, could flame out spectacularly with the right negative circumstances.

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