XYLD: Back To Double-Digit Yields, Still Holding Up Better Than The Index In 2022

seekingalpha2022-05-20

Eoneren/E+ via Getty Images Today was a bloodbath. The Dow declined -1,164.52 (-3.57%), the Nasdaq sold off by -566.37 (-4.73%), and the S&P 500 didn't provide a safe haven as it lost -165.17 (-4.04%)...

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Azerone.Kee
2022-05-20
Azerone.Kee
good sharing.

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The Dow declined -1,164.52 (-3.57%), the Nasdaq sold off by -566.37 (-4.73%), and the S&P 500 didn't provide a safe haven as it lost -165.17 (-4.04%)...</p>\n\n<a href=\"https://seekingalpha.com/article/4513320-xyld-etf-back-double-digit-yields-buy\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>XYLD: Back To Double-Digit Yields, Still Holding Up Better Than The Index In 2022</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nXYLD: Back To Double-Digit Yields, Still Holding Up Better Than The Index In 2022\n</h2>\n\n<h4 class=\"meta\">\n\n\n2022-05-20 22:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4513320-xyld-etf-back-double-digit-yields-buy><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Eoneren/E+ via Getty Images Today was a bloodbath. 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The Dow declined -1,164.52 (-3.57%), the Nasdaq sold off by -566.37 (-4.73%), and the S&P 500 didn't provide a safe haven as it lost -165.17 (-4.04%) on the day. Some would argue that the prints from Walmart (WMT) and Target (TGT) indicate that the economic environment has completely changed the narrative around investing, as retail was the latest sector to feel the pressure. Why the consumer is still strong, companies cannot pass along all the rising costs, which is eroding their earnings power. WMT misses eps estimates by -$0.18 while TGT missed by -$0.87. Rising commodity prices (oil, gas, orange juice, coffee, lumber, wheat, corn, etc.), inflation, and rising rates are impacting consumers at the register and companies on their bottom line. I recently wrote an article on the Global X Nasdaq 100 Covered Call Pacer Swan SOS Fund of Funds ETF|ETF (QYLD) and received some questions about the Global X S&P 500 Covered Call ETF (NYSEARCA:XYLD). XYLD is the spitting image of QYLD, except it tracks the S&P 500 rather than the Nasdaq. XYLD was introduced several months prior to QYLD in 2013, yet it hasn't become as popular. XYLD net assets are $1.57 billion compared to QYLD's $6.62 billion. Due to declining markets, XYLD's distribution yield has jumped back into the double-digits as its $4.93 annual distribution is a forward yield of 4.93%. Just like QYLD, if you're not seeking an income-generating vehicle, XYLD is not an investment that will satisfy your investment strategy. If you focus on capital appreciation, then XYLD will not deliver the returns you seek during strong investing cycles. XYLD is an income investment as its main objective is to provide a continuous flow of income to its investors. Global X The major bear thesis has been debunked, and XYLD is proving to be a method of capital preservation XYLD invests at least 80% of its total assets in the securities of the S&P 500 and writes call options on the S&P 500 index. Each time the fund writes a covered call option, the fund receives a payment of money from the investor who buys the option from the fund. The premium paid by the buyer of the option provides income in addition to the security's dividends or other distributions. XYLD uses an at-the-money call option strategy, and the options are written systematically on the monthly writing option date of the S&P 500. For all of this work, XYLD only charges 0.60% in management fees. Bears have labeled covered call funds as gimmicks and indicated that the strategy would underperform the broad markets during a bear market. There is nothing gimmicky about selling covered calls for income. I do it in individual positions. Many investors who have taken the time to understand options sell covered calls against their positions to increase the overall income an investment produces. Well, we're living in a bear market on the Nasdaq, and the S&P 500 is a couple of bad sessions away from joining the party. The argument about the \"Covid Crash\" was that the V-shaped recovery made it impossible to know how covered call ETF funds would hold up in a downturn. 2022 has been nothing but a downturn, so now is the perfect time to examine how these funds are doing. A sea of red is what many see in their portfolios. There have been limited places to hide, and even the largest companies, such as Apple (AAPL), are also declining. As of writing this article, the SPDR S&P 500 Trust ETF (SPY) has declined by -17.97% while the Invesco QQQ ETF (QQQ) has fallen -27.52%. Shares of XYLD have outperformed SPY significantly as it declined by just -12.47%. The major bear case has been debunked as SPY has fallen an additional -5.5%. I believe that 5 ½ months into 2022 is enough time to say this isn't a fluke and that the covered call strategy isn't as detrimental to capital in downturns as some have indicated it would be. Based on the chart above, there hasn't been a period in 2022 where SPY has performed better than XYLD. While SPY will generate more appreciation in bull markets, the difference today is that investors are generating a double-digit yield from XYLD during a harsh investing environment, and their overall capital has declined less. Seeking Alpha XYLD has delivered a continuous stream of income since its inception, and with the markets declining, its yield has been pushed into double digits in 2022 According to Seeking Alpha, going back to June 2013, it looks like XYLD closed at $40.45 on its first day of trading. If you had purchased 100 shares at the closing price on day 1 your capital investment would have been $4,045. Over the course of 9.83 years, XYLD has paid 118 consecutive monthly dividends amounting to $25.50 in income. I created a monthly chart to illustrate the distributions since inception below. Steven Fiorillo, Global X I want to reiterate that XYLD is not meant for capital appreciation. Yes, SPY has appreciated by 194.95% over the past decade, while XYLD has only appreciated by 11.05% since its inception 9.83 years ago. XYLD is a vehicle for income generation. Since July of 2013, XYLD has generated $25.50 per share in distributions. If you had purchased 100 shares during its first day of trading, XYLD would have produced $2,550 in distributions which are 63.04% of your original investment. Since its inception, XYLD has done exactly what it has been designed to do. It's thrown off an investment yield of 63.04% while providing $447 in capital appreciation (11.05%). Some will argue that it's better to just buy shares of an index fund and sell them along the way for income, and the math would probably work out better, but it's more work. XYLD provides a simplistic approach to generating income over the long term while preserving capital from the initial investment. If you look at a shorter period, shares of XYLD traded at $50.67 on 12/31/19. Assuming 100 shares were purchased for an investment of $50.67, they would have generated $3.68 in income throughout 2020, a forward yield of 7.26%. One year later, shares of XYLD were trading at $46.41 as they recovered from the Covid-Crash. In 2020 your initial investment would have declined by -$426 or -8.41%. XYLD closed out 2021 at a $50.66 share price, and if shares were held from the beginning of 2020 to the close of 2021, the initial investment would have declined by -$0.01 while adding an additional $458 in distribution income. Between 2020 and 2021, a 100 shares investment at $5,067 would have generated $8.26, a forward yield of 16.31%. Seeking Alpha Regardless of whether you have been looking at XYLD since its inception or over the past several years, it has been a solid income-producing investment. XYLD has never missed a monthly distribution and, in 2022, has paid an additional $0.34 per share in the first 4 months of distributions. It's hard to dismiss XYLD's track record when its initial premise is to generate income, not provide capital appreciation. Why I like XYLD during periods of volatility and why I own significantly more QYLD The external environment has been harsh for the markets, and additional volatility is almost a certainty. The largest names that print in excess of $50 billion on net income annually have also declined significantly. Until commodity prices decline and inflation starts to subside, the markets may not start their next leg to the upside. If you look at the first chart, XYLD has outperformed QYLD in 2022. At the same time, the Nasdaq is more likely to appreciate quicker than the S&P, it's also more likely to experience larger declines during corrections or bear markets. Nobody actually knows if we're close to a bottom, and until we see a significant rebound, I don't think anyone wants to be the first to call that the bottom is in. From an income perspective, XYLD and QYLD will generate respectable amounts through monthly distributions. If you are concerned with your capital investment fluctuating but want the benefits of the covered-call strategy, then XYLD is probably a better option. I like both funds, but the numbers indicate that XYLD will hold up better during corrections or bear markets. You won't generate the same amount of yield, but from a capital preservation perspective, your investment shouldn't erode as much as QYLD during downturns. I own some XYLD, but I own far more QYLD. My investment time horizon is decades for income investments unless something in the investment changes to make me reconsider the position. I am not concerned with additional volatility in my capital investments in QYLD and XYLD as I believe the markets will be higher in 2030 than their previous highs in 2021. Personally, I would rather own more QYLD because it has a larger yield, and I am reinvesting the distributions. My distributable income will grow quicker in QYLD over the years than it would in XYLD. Conclusion XYLD is going to follow the markets while continuing to generate monthly income. If the markets continue to decline, so will XYLD. I think XYLD is an interesting income investment with a proven track record. Please keep in mind that XYLD's strategy forgoes the majority of upside potential to pay monthly distributions, so it will not benefit to the extent SPY would in a bull market even though it invests in companies within the S&P 500. If you're an income investor XYLD has preserved capital better than SPY during the downturn. Currently, XYLD is paying $4.93 per share, which is a forward yield of 11.09%. XYLD isn't a yield trap, and as long as you're okay with the fact that shares of XYLD will follow the markets, its monthly income should be quite enticing for any income investor.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[{"id":9021645892,"gmtCreate":1653053048016,"gmtModify":1676535214919,"author":{"id":"4101545765383330","authorId":"4101545765383330","name":"Azerone.Kee","avatar":"https://community-static.tradeup.com/news/d39387dc5f4bc64e4716bd64e398a9e2","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"good sharing.","listText":"good sharing.","text":"good sharing.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9021645892","repostId":2236014714,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":2,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2236014714"}