YYY: A Cautionary Tale Of High-Fee, Low-Return Investing

seekingalpha11-19

YYY offers a 12.1% distribution yield but has a high expense ratio of 4.60%, leading to significant costs.YYY's strategy involves holding 60 diversified CEFs, selected based on yield, discount to NAV,...

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}\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\">\nYYY: A Cautionary Tale Of High-Fee, Low-Return Investing\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-19 23:41 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4738672-yyy-a-cautionary-tale-of-high-fee-low-return-investing><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>YYY offers a 12.1% distribution yield but has a high expense ratio of 4.60%, leading to significant costs.YYY's strategy involves holding 60 diversified CEFs, selected based on yield, discount to NAV,...</p>\n\n<a href=\"https://seekingalpha.com/article/4738672-yyy-a-cautionary-tale-of-high-fee-low-return-investing\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"YYY","symbol_name":"Amplify High Income ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4738672-yyy-a-cautionary-tale-of-high-fee-low-return-investing","article_id":"2484921239","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/482136541/image_482136541.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2484921239","pubTimestamp":1732030905,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"YYY offers a 12.1% distribution yield but has a high expense ratio of 4.60%, leading to significant costs.YYY's strategy involves holding 60 diversified CEFs, selected based on yield, discount to NAV,","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"YYY":"Amplify High Income ETF"},"translate_title":"YYY：高费用、低回报投资的警示故事","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"YYY":0.9},"content_text":"YYY offers a 12.1% distribution yield but has a high expense ratio of 4.60%, leading to significant costs.YYY's strategy involves holding 60 diversified CEFs, selected based on yield, discount to NAV, and liquidity but has underperformed the S&P 500.Over the past 10 years, YYY delivered a 40% return, significantly lagging behind the S&P 500's 240% return, despite its high distribution rate.Given its high costs and poor performance, YYY's risks outweigh its benefits, making it less appealing compared to more predictable, balanced options.John M Lund Photography Inc/DigitalVision via Getty Images  Background Amplify High Income ETF (NYSEARCA:YYY) is marketed as an income-focused fund, promising impressive distribution yields that can attract yield-seeking investors. The fund is part of the Amplify ETF family, with a focus on holding high-yielding ETFs. The fund currently promotes a 12.1% distribution rate, which seems appealing to potential investors. However, this approach comes with considerable risk and at a high-cost ratio. My analysis will delve into YYY's strategy, recent performance, and whether this ETF holds any appeal for income-focused investors. Fund Strategy & Characteristics The fund has the following characteristics:   Fund name: Amplify High Income ETF.  Fund managers: Amplify ETFs.  Gross Expense ratio: 4.60%.  Net Assets: $534 million.  Inception date: June 21, 2013.  Current Distribution Yield: 12.09%.  Amplify ETF Website The fund has been around for quite some time (over 11 years) and currently manages $534 million in assets. The gross expense ratio stands out from the above characteristics, this is probably the most expensive ETF/CEF expense ratio I have ever seen. The costs are coming from the \"acquired fund fees and expenses\" part. I would have expected an above-average expense ratio, given the fund needs to purchase a series of CEFs (each with their own management fees), but still, the 4.60% ratio is elevated. YYY Prospectus The fund positions itself as an actively managed ETF with the following strategy: YYY is a portfolio of 60 closed-end funds (CEFs) based on a rules-based index. The ISE High Income Index selects CEFs ranked highest overall by ISE in the following factors: Yield, Discount to Net Asset Value (NAV), and Liquidity. This investment approach results in a portfolio which contains a variety of asset classes, investment strategies, and asset managers. Eligible funds must be listed in the U.S., have a capitalization of at least $500 million, and an average daily trading volume of at least $1 million. The funds are then ranked based on a score including 3 factors: yield, discount to NAV, and liquidity. Constituents are selected and weighted based on their score, with some adjustments. The index is reconstituted twice a year, in January and July. The ISE High Income Index refers to a quantitative approach designed to measure the returns and income of the top 60 US-listed Closed-End Funds. The fund recently changed this strategy (as of 7/22/2024), as it will now hold 60 funds whereas before this was limited to 45 positions. YYY Prospectus The formula is pretty straightforward, the CEFs with the best CRS ranking are selected and their weight in the portfolio is determined accordingly. The number of funds that can be invested in has recently been increased to 60 holdings (up from 45 holdings). Given the fund is holding long positions in 60 CEFs, we can expect a high degree of diversification. The below table shows the different types of funds that currently are the main positions. The largest holdings are \"Hybrid/Balanced funds\" and \"Loan Participation funds\". YYY Website More specifically, the top holdings of the fund are currently IG, JQC, JFR, and WDI. YYY Website The scopes of the ETFs are diverse, ranging from covered call funds to utility funds and convertible funds. It's not the scope of this article to discuss the underlying funds in detail, but we do want to give you an idea of how diversified YYY's holdings are. Let's see how they performed with this strategy. Fund Performance YYY's performance has been rather poor, the ETF managed to deliver 40% in the past 10 years, whereas the S&P 500 Index delivered 240%. YYY delivered 1/6th of the broader US stock market index. This performance is disappointing, especially given the seemingly complex structure of the funds with its score ranking strategy. To make matters worse, the fund charged a high ratio for this underperformance. A simple S&P tracker like SPY charges only 0.09% and delivers a superior ROI. Seeking Alpha When we look at the performance in the past 6 months, we can see the same underperformance is still occurring, the fund is now still delivering half of what the S&P 500 Index is delivering to their investors. Seeking Alpha The above charts show the \"total returns\" which include the distribution yields already, so even with these +12% (annualized) returns, the fund could not deliver an overall ROI to their investors which was in line with the performance of the S&P 500. Comparative Analysis When compared to other income-generating ETFs, YYY's strategy is still underperforming. Funds like Invesco CEF Income Composite ETF (PCEF) and Saba Closed-End Funds ETF (CEFS) all outperformed YYY. Seeking Alpha When we compare the expense ratios of the funds, we can see YYY is among the most expensive ones (right after the 5.81% expense ratio of CEFS). Seeking Alpha In summary, when we look at the historical performance we can see YYY did not manage to keep up with the performance of the broader stock index (S&P 500), not in the long run and also not in the past 6 months. When we compare the performance of YYY with the performance of similar CEFs, we can see that YYY has also underperformed these CEFs. Conclusion YYY exemplifies the allure and pitfalls of expensive CEFs that hold many CEFs in their portfolio. While its distribution rate of around 12% is eye-catching, the strong decline in price and the fund's overall performance raise red flags. The high-yield ranking strategy, reliance on volatile CEFs, and high expense ratio have resulted in significant principal erosion.  For most investors, the risks associated with YYY outweigh the benefits as more predictable and balanced options are available in the market. Prospective investors should carefully weigh whether YYY's current income potential justifies its associated capital risks.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"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/2484921239"}