QYLD ETF Review By A Conservative Income Investor – Should You Buy It?

I have been a financial advisor and watching the market for over 25 years. Many of my friends and family ask me about the stock market on a regular basis. Last night, I received a call from a friend asking me if he should buy “The Global X NASDAQ 100 Covered Call ETF (QYLD)”?

He knows I love covered calls and I had taught him how to sell covered calls on some of his stocks to create income. QYLD ETF is currently yielding over 11% that pays monthly and appeared to be the perfect income ETF for him.

Like most investments, QYLD has positives and negatives. After explaining these to my friend he decided not to purchase the ETF at this time. The biggest negative for him was the tax consequences and sector risk.

That being said, many investors may choose to buy QYLD after reviewing the fund. The tax issues may be avoided by putting it into a qualified account. The purpose of this article to provide an unbiased review QYLD. As always, you should do your own research before investing.

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How does QYLD make money?

QYLD seeks to capitalize on the upside potential of the Nasdaq 100 by using derivatives in its funds. The fund helps investors make money by selling call options and passing on the income to investors.

While this strategy is very effective, it can lead to large losses if the fund’s positions are not properly managed. Note that QYLD uses a lot of leverage, which means it can trade more aggressively but still earn significant returns.

How are QYLD dividends taxed?

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The first question anyone should look at when buying an investment for dividends is the tax treatment. Dividend payments can be qualified or ordinary. A qualified dividend payment gets the lower tax rate, while ordinary dividend payments are taxed under the standard income tax schedule. Read More – Qualified Dividends vs Ordinary Dividends – What is the difference?

QYLD has the most complex taxation I have seen. The dividend payments would normally be filed under an ordinary system with some kind of special tax incentive for the options sales. However, investors are not getting taxed at all because it is a return of capital. This could be very bad if you ever sell the ETF because you are going to owe a lot of taxes.

Anyone looking to purchase QYLD needs to spend time talking to a tax professional before buying it. I think the only way to buy it is in a ROTH IRA due to the tax treatment.

QYLD ETF Chart

QYLD’s Stock Market Performance

The past performance of QYLD is less than stellar, but people don’t generally buy the ETF for the growth potential. The chart above shows the dividend-adjusted return since inception of 91.6% compared to the S&P 500 of 177.6%.

ABS REPORT
TickerQYLD
CompanyGlobal X NASDAQ 100 Covered Call ETF
YTD Return4.40%
Beta 1-Year0.74
Beta 3-Year0.72
Best Monthly Return8.90%
Worst Monthly Return-14.30%
Max Drawdown 1-Year-8.60%
1-Month Return1.90%
3-Month Return3.00%
1-Year Return21.70%
2-Year Return23.40%
3-Year Return30.10%
5-Year Return72.60%

What is covered call writing?

Covered call writing is when an investor sells a call for a premium. This is a great way to create income in a portfolio. In this case QYLD is selling calls against its Nasdaq 100 holdings.

If the market goes down or stays the same, then it gets to keep the premium. However, if the market is up on the exercise date, then it keeps the premium, but must sell at the strike price.

If you like to learn more about selling covered calls, click here for our covered calls for income article.

What are covered call ETFs?

Covered call exchange traded funds (ETF)s are professionally managed funds that use covered calls and usually other types of options to create income or boost the performance of the fund. Investors like them because covered calls are way to lower the risk, while increasing income. The downside to covered calls is primary the expenses and the taxes.

What is QYLD’s underlying index?

The Nasdaq 100 is QYLD’s underlying index. This index is composed of large tech companies.

How do volatile markets affect QYLD?

Volatile markets have both a negative and positive effect on QYLD. It can have a positive effect because when the market is more volatile the cost of premiums goes up. This increases the income of the ETF. The fund’s NAV has remained very constant and is not designed to grow.

However, a bearish market or one when the tech sector goes down could affect the overall value of the fund. This is due to the actual holdings which is the primary risk of any covered call strategy.

QYLD Holdings

QYLD holdings are a bit more complex because it is a covered call ETF. I was unable to find a list of all the contracts but was able to get the underlying securities and percentages as of 6/29/21.

% of Net AssetsTickerName
11.358AAPLAPPLE INC
10.204MSFTMICROSOFT CORP
8.698AMZNAMAZON.COM INC
4.217FBFACEBOOK INC-CLASS A
4.09GOOGALPHABET INC-CL C
4.057TSLATESLA INC
3.803NVDANVIDIA CORP
3.668GOOGLALPHABET INC-CL A
2.621PYPLPAYPAL HOLDINGS INC
2.153ADBEADOBE INC
1.978CMCSACOMCAST CORP-CLASS A
1.81NFLXNETFLIX INC
1.733INTCINTEL CORP
1.703CSCOCISCO SYSTEMS INC
1.553PEPPEPSICO INC
1.49AVGOBROADCOM INC
1.382TMUST-MOBILE US INC
1.364TXNTEXAS INSTRUMENTS INC
1.353COSTCOSTCO WHOLESALE CORP
1.216QCOMQUALCOMM INC
1.052AMGNAMGEN INC
1.039CHTRCHARTER COMMUN-A
1.013INTUINTUIT INC
0.992SBUXSTARBUCKS CORP
0.977AMATAPPLIED MATERIALS INC
0.839ISRGINTUITIVE SURGICAL INC
0.813AMDADVANCED MICRO DEVICES
0.719ZMZOOM VIDEO COM-A
0.702MRNAMODERNA INC
0.695MUMICRON TECHNOLOGY INC
0.692LRCXLAM RESEARCH CORP
0.68BKNGBOOKING HOLDINGS INC
0.659MDLZMONDELEZ INTER-A
0.638GILDGILEAD SCIENCES INC
0.632ADPAUTOMATIC DATA PROCESSING
0.595MELIMERCADOLIBRE INC
0.554ATVIACTIVISION BLIZZARD INC
0.54CSXCSX CORP
0.533FISVFISERV INC
0.518ILMNILLUMINA INC
0.494JDJD.COM INC-ADR
0.49ADSKAUTODESK INC
0.471ADIANALOG DEVICES INC
0.433ASMLASML HOLDING-NY
0.431REGNREGENERON PHARMACEUTICALS
0.43DOCUDOCUSIGN INC
0.43NXPINXP SEMICONDUCTORS NV
0.417BIDUBAIDU INC – SPON ADR
0.4IDXXIDEXX LABORATORIES INC
0.396BIIBBIOGEN INC
0.394PDDPINDUODUO INC-ADR
0.379VRTXVERTEX PHARM
0.377MRVLMARVELL TECHNOLOGY INC
0.376KLACKLA CORP
0.37KHCKRAFT HEINZ CO/THE
0.368MNSTMONSTER BEVERAGE CORP
0.367KDPKEURIG DR PEPPER INC
0.364WDAYWORKDAY INC-CLASS A
0.357ALGNALIGN TECHNOLOGY INC
0.357EBAYEBAY INC
0.34LULULULULEMON ATHLETICA INC
0.335WBAWALGREENS BOOTS
0.33ROSTROSS STORES INC
0.326MARMARRIOTT INTL-A
0.326MTCHMATCH GROUP INC
0.324EXCEXELON CORP
0.317EAELECTRONIC ARTS INC
0.315SNPSSYNOPSYS INC
0.31AEPAMERICAN ELECTRIC POWER
0.308DXCMDEXCOM INC
0.307MCHPMICROCHIP TECHNOLOGY INC
0.302ALXNALEXION PHARM
0.3CTASCINTAS CORP
0.292ORLYO’REILLY AUTOMOTIVE INC
0.288PAYXPAYCHEX INC
0.287CDNSCADENCE DESIGN SYS INC
0.284CTSHCOGNIZANT TECH-A
0.269XELXCEL ENERGY INC
0.259TEAMATLASSIAN CORP-A
0.259NTESNETEASE INC-ADR
0.253XLNXXILINX INC
0.246PTONPELOTON INTERACTIVE INC-A
0.233CPRTCOPART INC
0.233PCARPACCAR INC
0.233SWKSSKYWORKS SOLUTIONS INC
0.226FASTFASTENAL CO
0.223ANSSANSYS INC
0.222OKTAOKTA INC
0.212SGENSEAGEN INC
0.21VRSKVERISK ANALYTICS INC
0.209MXIMMAXIM INTEGRATED PRODUCTS
0.206SIRISIRIUS XM HOLDINGS INC
0.198VRSNVERISIGN INC
0.179CDWCDW CORP/DE
0.177DLTRDOLLAR TREE INC
0.176CERNCERNER CORP
0.171SPLKSPLUNK INC
0.142INCYINCYTE CORP
0.137TCOMTRIP.COM GROUP LTD-ADR
0.117CHKPCHECK POINT SOFTWARE TECH
0.114CASH
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