QQQI Or JEPQ, Which Income Fund Is Better?

seekingalpha07-10

honglouwawa We are increasingly seeing investment managers launch short-volatility structured products that combine investments in equity indices like the Nasdaq 100 Index with a derivatives overlay ...

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MORGAN NASDAQ EQUITY PREMIUM INCOME ETF","SQQQ":"纳指三倍做空ETF","QLD":"纳指两倍做多ETF","QYLD":"纳斯达克100 Covered Call ETF-Global X","PSQ":"纳指反向ETF","BK4593":"纳斯达克ETF","BK4585":"ETF&股票定投概念","BK4534":"瑞士信贷持仓","FDN":"First Trust Dow Jones Internet I","TQQQ":"纳指三倍做多ETF","NDX":"纳斯达克100指数","QQQ":"纳指100ETF","SPYI":"NEOS S&P 500 High Income ETF","BK4550":"红杉资本持仓","BK4588":"碎股"},"translate_title":"QQQI和JEPQ，收益基金哪个好？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SPYI":1,"QYLD.AU":1,"QYLD":1,"QQQI":1,"JEPQ":1,".IXIC":0.9,"FDN":0.9,"NDX":0.73,"TQQQ":0.6,"SQQQ":0.6,"QQQ":0.6,"QLD":0.6,"QID":0.6,"PSQ":0.6,"NQmain":0.6,"MNQmain":0.6},"content_text":"honglouwawa We are increasingly seeing investment managers launch short-volatility structured products that combine investments in equity indices like the Nasdaq 100 Index with a derivatives overlay to generate option income. In March, Bloomberg estimated that over $60 billion was invested in these strategies (Figure 1).   Figure 1 - Increasing investor appetite for options-income ETFs (Bloomberg) One new entrant in this space is the Neos Nasdaq-100 High Income ETF (NASDAQ:QQQI). Similar to its sibling fund, the Neos S&P 500 Index High Income ETF (SPYI), QQQI's mandate allows the fund manager flexibility in varying the notional overwritten and choosing to write call spreads instead of calls. This flexibility can be very valuable after sharp market declines when selling calls can truncate fund returns. Overall, the QQQI has delivered total returns in line with the buy-rated JEPQ ETF. The choice between QQQI and JEPQ may come down to an investor's preference for income or capital gains. I rate the QQQI a buy. Fund Overview The Neos Nasdaq-100 High Income ETF is an actively managed ETF that aims to invest in the holdings of the Nasdaq-100 Index while using a 'data-driven' call option strategy to generate premium income. The QQQI ETF was recently launched in January 2024, so it does not have a long operating history. However, following the success of its sibling fund, the Neos S&P 500 Index High Income ETF (\"SPYI\"), QQQI has gathered over $330 million in assets in a matter of months (Figure 2). Like SPYI, the QQQI ETF charges a 0.68% expense ratio. Figure 2 - QQQI overview (neosfunds.com) Strategy Similar to SPYI, the QQQI invests in the stocks that make up the Nasdaq-100 Index plus a call options strategy that involves a mix of written call options and long call options (i.e. writing call spreads). Furthermore, by utilizing NDX Index options that are classified as 'Section 1256 Contracts', the QQQI ETF may receive favorable tax treatment as Section 1256 contracts are taxed at 60% long-term / 40% short-term capital gains taxes. Portfolio Holdings As per the fund's mandate, the QQQI ETF holds the stocks in the Nasdaq-100 Index in addition to writing call options. As of July 8, 2024, the QQQI ETF has written call options on the NDX Index with strike prices of 20500 and 20200 and expiring on August 16th (Figure 3). Contrary to the strategy description above, the QQQI ETF currently does not hold any long call options. Figure 3 - Abbreviated portfolio holdings of QQQI (Author created from portfolio holdings file) With the Nasdaq-100 Index currently at ~20,400, it appears the QQQI has written options that are slightly in the money (\"ITM\") and out of the money (\"OTM\"). The QQQI has written 124 option contracts in total, worth $254 million in notional value (each NDX option multiplier is $100), so the QQQI has overwritten ~76% of the notional of the fund. Returns Since its inception, the QQQI ETF has delivered strong total returns of 12.5% compared to 17.0% for the Invesco QQQ ETF (QQQ), which is also based on the Nasdaq-100 Index (Figure 4). Figure 4 - QQQI vs. QQQ, since inception (Seeking Alpha) For a strategy that routinely trades away upside for premium income, QQQI has a fairly strong 74% upside capture ratio. However, given the plethora of buy-write funds available, how does QQQI stack up against its peers? QQQI vs. Peers Comparing the QQQI ETF against two popular Nasdaq-100-based ETFs, the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) and the Global X Nasdaq 100 Covered Call ETF (QYLD), we can see that QQQI has delivered in-line performance compared with JEPQ but has outperformed the QYLD (Figure 5). Figure 5 - QQQI vs. JEPQ and QYLD, since inception (Seeking Alpha) The difference in the total return performance between QQQI, JEPQ, and QYLD can be attributed to the subtle differences in their strategies. First, comparing QQQI to JEPQ, we know that JEPQ overwrites 100% of its portfolio, but mainly uses slightly OTM calls. On the other hand, the amount of notional overwritten by QQQI is at management's discretion, and judging from Figure 3 above, QQQI tends to write ATM or slightly OTM calls. Comparing QQQI and QYLD, we know that QYLD overwrites 100% of its notional using ATM options while QQQI varies the percentage overwritten and may use OTM options. Using ATM options is a sub-optimal solution in rising markets, as the call options often end in the money (\"ITM\") and QYLD has to pay a cash outlay to settle the options. This leads to underperformance. After comparing total returns, Figure 6 compares the distribution yields of the three funds. Investors should note that QQQI's distribution rate is understated, as the fund only began operations in January. Based on the most recent month's distribution annualized, QQQI is yielding 14.5%. Figure 6 - QQQI vs. JEPQ and QYLD, distribution (Seeking Alpha) Overall, QQQI and JEPQ are clearly superior to QYLD in terms of total returns. However, selecting between QQQI and JEPQ may be up to the investor's personal preference between receiving returns as monthly income or unrealized as future capital gains. Capped-Upside/Uncapped-Downside Is Main Risk Of QQQI While QQQI has delivered solid historical returns, one fly in the ointment may be QQQI's downside exposure. The main weakness of the buy-write strategy is that upside returns are capped by call options sold, but downside returns are uncapped. During violent selloffs, the QQQI ETF may decline nearly as much as the underlying index. Although to date we have not had such a drawdown, it is almost inevitable that the QQQI ETF will experience a large drawdown at some point in the future. For example, the CBOE Nasdaq-100 BuyWrite Index, an index modeling the buy-write strategy on the Nasdaq-100 Index using ATM options, has suffered two significant 10% drawdowns since 2014 (Figure 7). Figure 7 - CBOE Nasdaq-100 BuyWrite Index historical returns (cboe.com) Investors in the QQQI ETF and similar buy-write strategies need to be mentally prepared for large potential drawdowns when the tide turns against technology stocks. Conclusion Following on the success of the SPYI ETF, the Neos Nasdaq 100 High Income ETF is a new entrant in the BuyWrite ETF space focusing on the Nasdaq 100 Index. The QQQI ETF invests in a portfolio that replicates the Nasdaq 100 Index plus a 'data-driven' call option strategy that may buy and sell call options to generate income. I believe QQQI's flexibility in writing covered call spreads on varying notional exposure can be very valuable, especially after sharp market declines when writing covered calls can truncate returns and lead to underperformance. So far, the QQQI ETF appears to be a solid income fund, paying a 14.5% annualized distribution yield with total returns of 12.5% since inception, or 74% of the index's returns over the same time period. QQQI's total returns are in line with the popular JPMorgan Nasdaq Equity Premium Income ETF (\"JEPQ\").  Overall, I believe the QQQI ETF deserves a buy for investors seeking income from a growth portfolio. The choice between QQQI and JEPQ is up to the investor's preference between receiving total returns via income or future capital gains.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"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":"4.29.3","shortVersion":"4.29.3","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/2450120836"}