CONY: This Fund's Recent Performance Isn't Likely Sustainable

seekingalpha08-15

Income investors have more options for regular payouts, including covered-call funds like YieldMax COIN Option Income Strategy ETF.CONY uses options strategies to create synthetic long positions in ...

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While those seeking dividends have had more limited financial options in the past, there has been a significant increase in a variety of exchange-traded funds and other investments that are focused on offering investors regular payouts. One covered-call fund focused on income that came to market nearly a year ago is the YieldMax COIN Option Income Strategy ETF (NYSEARCA:CONY). This exchange-traded fund uses a variety of options strategies to create synthetic long positions in Coinbase (COIN) that enable the managers of the fund to make regular monthly payouts. Data by YCharts CONY has offered investors total returns of 85.67% since August 2023, while the S&P 500 (SPY) has offered investors total returns of 24.11% during this same timeframe. Today, I am initiating coverage of the YieldMax COIN Option Income Strategy ETF. This fund lacks balance, the risks of capital loss outweigh the benefits of income. The investment is too volatile, and the recent performance of the fund is misleading, since the ETF's core holdings have risen consistently since the exchange-traded fund's inception a year ago, a strong sell-off would likely lead to significant losses of the principal for multiple reasons. CONY has an expense ratio of 1.01% and $625.17 in assets under management. The 30-day yield of the fund is 4.61% The fund uses synthetic long positions in Coinbase that include a number of different options strategies to generate income. This ETF both buys and sells options, and the fund invests the money from selling the option primarily in low-risk income-generating instruments such as Treasury Bonds. A list of CONY's holdings (Seeking Alpha) The fund uses a variety of options strategies to capture a limited amount of the upside of Coinbase by taking a synthetic long position in the company. A synthetic long position is when someone is long a stock without owning any shares in the underlying equity holding. CONY owns no shares of Coinbase. A List of CONY's Options Strategies (CONY Prospectus) CONY buys and sells call options, and also sells put options. The fund both buys at-the-money call options and sells calls up to 15 percent out-of-the-money. Since this ETF shorts put options at times, investors can be exposed to unlimited downside risks, while the upside of the fund is limited since the exchange-traded fund is generally using call spreads that involve selling calls each month as well. Since CONY relies on selling call options that have widely varying implied volatility premiums, the monthly income the ETF pays out has been predictably inconsistent. A List of CONY's Monthly Payouts (Nasdaq.com) The fund's monthly payouts have varied from $1.0061 a month to $2.7944 a month in just the first year of the ETF coming to market. Coinbase is one of the most volatile stocks in the market with a five-month beta of 3.40, and the stock price can move dramatically in a short period of time. Coinbase holds nearly $25 billion in Bitcoin, and the stock has closely tracked this cryptocurrency, which has also been very volatile, for some time. While covered call funds want elevated levels of volatility to generate increased options premiums, excessive moves usually create significant risks to the principal since most of these investments cap upside benefits but not downside potential losses. Data by YCharts Coinbase has been one of the most volatile stocks in the market for some time. While CONY has performed well over the last year, Coinbase has been consistently rising since the fund's inception in August of last year. This fund has struggled when COIN has fallen in value, as happened over the last month. Data by YCharts Coinbase fell 18.84% over the last month, while CONY fell 22.53% during this same timeframe. This is true despite the fact that in the last year, Coinbase has risen 144.94%, while CONY has offered investors total returns of 86.37% during this same period of time. CONY is not capturing most of the upside of Coinbase, but the fund has sold off hard when Coinbase has fallen. While most dividend and income investors are more concerned with substantive and consistent payments than maximizing overall returns, this ETF has not done a good job of protecting downside risks, and the payouts have varied significantly month-to-month as well.  CONY is an actively managed fund that has only been in the market for a year, the manager of this ETF may evolve the various options strategies being used, but the recent returns this exchange-traded fund has offered are misleading, and this investment also has a lot of downside risks. While some growth investors with a higher risk tolerance may find this investment appealing, most dividend and income investors will likely find this ETF's risk-reward profile to be unfavorable.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"Business Data","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":1,"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":"4.29.1","shortVersion":"4.29.1","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/2459476034"}