Investors Alley

A relatively new ETF with a funny name has posted massive returns since it launched 18 months ago. The question is, has this ETF broken the code for great ongoing returns, or should investors be wary?

Let’s look at how the -1x Short VIX Mid-Term Futures Strategy ETF (ZIVB) functions and review the investment results.

The ZIVB goal is to match the daily investment results of the S&P 500 VIX Mid-Term Futures Inverse Daily Index. The index measures inverse the return of a daily rolling long position in the fourth, fifth, sixth, and seventh-month VIX futures contract.

The longer-dated short futures contracts will be more stable than what happens with spot VIXX. The natural path for VIX is to decline as you move towards the shorter end of the term structure. As an inverse VIX tracking ETF, ZIVB should (and has) generated positive returns.

The ZIVB website states that the ETF has a current distribution rate of 25.52%. The yield comes from level monthly dividend payments of $0.485 per share. It appears that this is a managed dividend policy payout, sharing portfolio profits with investors throughout the year rather than paying a massive dividend at the end of the year.

ZIVB launched on April 19, 2023, and started paying dividends in January 2024.

Since its inception, the ETF has returned 70.54% (as of August 28). ZIVB appears to offer a great dividend yield and a great total return.

Note that when VIX spiked during the early August “Flash Crash” the ZIVB share price took a big hit, dropping by 30% in just a few days. The price recovered as VIX normalized, but the steep drop shows the dangers of an inverse VIX strategy.

The S&P Dow Jones website provides ten years of results for the above-listed VIX Futures Inverse Daily Index.

As you can see, the Index performs poorly in bear market years (2018, 2020, 2022) and does great during bull markets.

This is an ETF that you may want to buy as the stock market bottoms out a bear market or when short-term disruptions generate a VIX spike. But don’t let recent results convince you that the returns can continue.

This week, we are doing a covered call analysis on Taiwan Semiconductor (TSM). The stock price has recovered and stabilized since the flash crash of early August. However, volatility remains elevated, and certainly high enough to make covered calls attractive. We are looking at TSM because there is a single stock covered call ETF from

Precious metals—specifically, gold and silver—are having an excellent year. Gold is trading near record highs, and silver is at levels it hasn’t seen for over a decade. Since my strategies focus on income-paying investments, a silver-focused covered call fund gives the best of both worlds.

Earlier this year, we launched the first of our high-yield ETF research services to evaluate and recommend funds in the rapidly growing universe of income-enhanced funds using various option strategies. One significant benefit of these ETFs is that you can focus on specific underlying sectors, such as the S&P 500, QQQ, Treasury securities, or commodities.

Currently sponsored by UBS, the ETRACS Silver Shares Covered Call ETN (SLVO) stands out with its decade-long track record. Originally sponsored by Credit Suisse, which UBS acquired in March 2023, SLVO offers a unique investment opportunity in the silver market.

SLVO is structured as an exchange-traded note (ETN), which is an unsecured debt obligation of the issuer. ETNs are popular in Europe, where exchange rules make it difficult to issue ETFs. An ETN tracks the returns of a specified index. SLVO tracks the returns of the Credit Suisse NASDAQ Silver FLOWS 106 Index. The index tracks the notional returns from owning the iShares Silver Trust ETF (SLV) and selling 6% out-of-the-money call options.

With a current trading price of $78.40 per share, SLVO offers an attractive investment opportunity. The fund pays monthly dividends, which have varied from $0.299 per share to $2.124 per share over the last year. This wide range implies that SLVO can potentially yield returns ranging from the high single digits to the 20% range over time.

Silver has surged this year, and the SLVO total return has matched the gains posted by SLV. In a flat-to-down market for silver, SLVO will outperform. Of course, it’s great to get those hefty dividends every month.

In recent months, I have successfully recommended a tactical swap trade between SLVO and the ETRACS Gold Shares Covered Call ETN (USOI) to boost the income earned by my subscribers. This strategy, based on the principle that volatility drives option premiums, has proven to be effective in increasing the monthly distribution for investors. It is a testament to the potential of SLVO and the soundness of our investment strategies.

Close to half of Americans say that financial stress has a negative impact on their mental health. For retirees, the combination of not having a job and needing to make savings stretch for the rest of their lives, plus fears of a market crash, can make stress an everyday experience. So, let’s talk about an investment strategy that can greatly reduce the stress of worrying about your retirement income.

A recent Bankrate.com survey suggests the following…

82% of American adults say money negatively impacts their lives.

56% of women and 47% of men experience mental health issues due to financial stress.

29% of adults say they worry daily about money.

The survey covers every demographic, with most of the respondents employed and of working age.

When you approach retirement, you must cope with different financial realities. First, the regular paycheck stops. Your income becomes Social Security, possibly a pension if you are lucky, and a lump sum of any retirement savings such as a 401(k) and your personal savings.

Most retirees need to get an income from their lump sum of savings (including their 401(k) amount) to allow a comfortable retirement. The money must last the rest of their lives, which could be 30 years or longer.

Traditional financial planning guidance recommends a balanced portfolio of stock and bond funds and a retirement income withdrawal of no more than 4% per year. However, that approach has several issues.

First, 4% may not be enough income to support your retirement plans. Four percent of a million dollars is just $40,000. Most people with a million in retirement savings would hope for more income.

Second, a stock market bear market means lower income from your portfolio. If the market is down 30%, your retirement income would also be down by 30%. Plus, you would be selling shares during a crash, which is when you want to buy stocks “on sale,” not sell them at a loss.

Finally, studies show that with the traditional balanced portfolio and a 4% withdrawal rate, you have at least a 20% chance of running out of money before you run out of time.

My Dividend Hunter service offers a different strategy for generating a larger income in retirement and ensuring that you will never run out of money.

The Dividend Hunter system comes with a recommended portfolio of high-yield investments, with an average yield running from 8% to 10%. The portfolio is diversified across individual stocks, ETFs, bond funds, and preferred stocks. I manage the portfolio to maintain the stability of the dividend payments.

Remember, financial planners recommend a maximum 4% withdrawal rate from your retirement savings. With the Dividend Hunter 8% or more yield, you can easily fund your retirement at a higher withdrawal rate. I recommend reinvesting at least a portion of your dividend income, but you could easily take out 6% per year and reinvest at least 2%, ensuring your income will increase every year.

The best part is that dividends are much more assured and predictable than stock prices. Knowing that your retirement income will be secure and growing definitely provides peace of mind.

If you are not yet ready for retirement, following the Dividend Hunter portfolio with dividend reinvestment will grow your income by the same 8% to 10% per year, making it easy to plan for when you will be ready.

This week, we are doing a covered call analysis of Exxon Mobil (XOM). The stock price has been fairly range-bound this year. However, volatility remains high enough to make covered calls attractive. In fact, covered calls can pay over 20% in premium from calls for the year, compared to just around 3% for the standard

During my time as a fighter pilot, a one-versus-one dogfight was one of the most challenging types of flights. This type of mission pitted one pilot’s skills against his opponent. This air combat training was not the type of flight in which you wanted to come home second best.

The new category of single-stock covered call ETFs now has two sponsors offering competing funds covering the same underlying stocks. This type of ETF is new, with the oldest funds operating for just over a year. Many have track records that are only a few months in length.

The funds have been in the market long enough to compare returns for covered call ETFs with the same underlying stock.

So let’s pit two head-to-head in a virtual dogfight of Amazon-trading ETFs.

The YieldMax ETFs were the first with this type of ETF, launching their initial funds in November 2022. Currently, YIeldMax offers 19 single-stock ETFs, with more on the way. These funds have caught the attention of investors with eye-popping distribution yields.

The six Kurv single-stock covered call ETFs launched at the end of October 2023. These funds have lower distribution yields, but the stock price charts for the last four-plus months have very positive slopes.

With at least a few months of track records, I want to compare the returns of the YieldMax and Kurv funds covering the same stocks.

Let’s start at the top of the alphabet and compare the two Amazon.com (AMZN) covered call ETF returns since November 1, 2023.

The current quoted yield for the YieldMax AMZN Option Income Strategy ETF (AMZY) is 34.14%. Since November 1, the AMZY share price has appreciated by 10.35%. The $2.70 in dividends paid add 13.12% to the share price gains. A little math gives a total return of 23.47% since November 1.

The Kurv Yield Premium Strategy Amazon (AMZN) ETF (AMZP) shows a current distribution rate of 15.85%. That’s almost 20% less than the current yield quote for AMZY. From November 1 through March 18, AMZP share price appreciation came in at 17.04%. Over the selected period, AMZP paid $1.40 in dividends. Due to the funds’ ex-dividend schedule, over my selected time frame, AMZP paid one fewer dividend than AMZY. The dividends earned add 5.46% to the share appreciation return, giving a total return of 21.68%.

Those returns are surprisingly close. Or maybe not surprisingly, since the two ETF sponsors use a covered call strategy on the same stock. AMZN has been in a strong uptrend over the past months, and both funds captured a solid portion of the share price appreciation.

I will do the same calculations for the other five Kurv funds against their YieldMax counterparts over the next five weeks and publish my findings here.

I will also track comparisons over the longer term. That information will be shared with subscribers of my ETF Income Edge service – to join, click below.

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Can you really get rich in the stock market?

We all see ads and pitches about secret systems that can make us rich in no time.

According to some ads, these systems have produced hundreds of triple-digit short-term winners in a row. Using these magical systems, you can make the money you need to avoid the evils of government agencies and elected officials.

I am a huge fan of avoiding government agencies and officials. I will not even live in a neighborhood with an HOA due to my “issues” with authority.

However, I am still waiting to meet the first millionaire from one of these services. To be fair, I have met a bunch of millionaires who have sold these services.

I have met a few people who have made tens of millions of dollars trading the markets.

Most of them use complex, ever-changing math formulas powered by arrays of supercomputers or some form of longer-term trend following enormous amounts of leverage. None of them would sell their strategies to the public for a few thousand bucks a year.

However, you can get rich in the stock market. It takes time, common sense, and some discipline, but people do it all the time…

If you ever find yourself in Miami and see a couple skipping along the ocean front and the older gentleman is wearing a bright red hat, chances are you are about to meet Herb Wertheim.

Herb was born in Philadelphia in 1939 to a working-class Jewish family that had escaped Nazi Germany. In 1945, the Wertheim clan moved to Hollywood, Florida, and lived over the bakery they opened after arriving in the Sunshine State.

Herb and I have a lot in common. We both found many things we would rather do than drop into high school for bothersome stuff like classes and tests.

This little quirk eventually led to Herb being arrested for truancy. The judge gave him the then-popular choice of jail or the Navy, and Herb wisely chose the Navy.

The Navy placement exams revealed that Herb was quite intelligent, but dyslexic. He studied physics and chemistry and ended up working in naval avionics.

While in the Navy, he began investing his excess cash. His first purchase was shares of Lear Jet, since, given his career field, he was very familiar with the company.

After the Navy, he attended Brevard Community College before attending the University of Florida to earn a degree in electrical engineering. He eventually earned an optical engineering degree and a Doctor of Optometry from the Southern College of Optometry.

Herb had a successful career as an eye doctor and inventor. At every step along the way, he lived within his means and invested his excess cash.

Herb is a big believer in innovation and technology, so he bought Apple and Microsoft early on and increased his stake every time they sold. He bought stocks like British Petroleum (BP) and General Electric Co. (GE) when everyone hated them.

He preferred stocks that paid dividends that could be reinvested. Herb only sold shares if the business took a prolonged turn for the worse.

He has an oceanfront home in Coral Gable, a ranch in Vail, Colorado, a place on the Thames in London, and two wine country estates in California.

He and his wife live part of the year on the World Residences at Sea.

He is a big believer in education, so the family name is all over the campus of Florida International University.

Herb had a decent business career. He got “Name on the Medical School Building, hanging out with Martha Stewart, skiing with Buzz Aldrin rich,” buying great companies at reasonable prices and never selling.

Then there is Anne Scheiber; She worked for 23 years for the Internal Revenue Service. Anne Scheiber never made more than $4,000 a year.

She lived simply, even frugally, even her entire life. She invested regularly in the stock market. When she retired in 1944, she had a whopping $5,000 to her name.

When she died in 1995, she left a fortune of $22 million to Yeshiva University in New York City. She bought dividend-paying stocks and never sold them.

I realized this is less exciting than a secret system that can give never-ending lightning-fast triple-digit winners and create seven-digit wealth in very short order.

I also know that some folks do not have another thirty or forty years to compound and must catch up quickly. You can use a variation of the theme involving smaller companies to grow wealth rapidly and help you achieve your goals before it is too late.

It is not a secret system. It is paying great prices for good companies with solid credit and holding them for a long time. It is adding as much cash as possible to the positions when markets are scary. It is not obsessing over every little tick in the market and trying to trade magic patterns.

Go look for all the patient, aggressive investors on the Forbes 400 list or wealthiest people. It will not take you long. Buffet, Icahn, Kravis, David Tepper, Beal, Singer -dozens of billionaires got rich by buying stocks and real estate when they were undervalued and holding for a long time.

Now find me the magic pattern billionaires.

I will wait right here and reread Don Quixote and In Search of Lost Time.

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In my 48-Hour Income service last week, we sold a cash-secured put on solar energy company, Canadian Solar (CSIQ). In 48-Hour Income, the goal of the service is to generate 1% to 3% returns per week by selling 2-day puts in certain stocks. CSIQ put premiums were elevated at the time due to upcoming earnings.

Real estate investment trust (REIT) values are inversely sensitive to rising interest rates. With the Federal Reserve starting the most rapid rate increase trajectory in history two years ago, REIT values have fallen by about 35% over the same two years.

With interest rates likely to stay higher for longer, what are the prospects for REIT investing?

From April 2022 until July 2023, the Fed increased its Fed Funds Target rate from 0.25% to 5.25%. The rate has not changed since July of last year.

How do the recent changes (or lack of changes) in interest rates affect commercial real estate and REITs?

A central point to remember is that changes in commercial real estate happen very slowly. Mortgages go on for five to ten years. Leases are multi-year contracts. Property values are not always apparent until there is a sale.

Higher interest rates hurt REITs when they must refinance debt or mortgages. A REIT will have laddered maturities, so the adverse effects of higher rates will show up over time, meaning several years.

The remote work trend has led to fewer and fewer workers going to the office. The effects of this will happen slowly as long-term leases expire and companies look for smaller spaces to fit a smaller office workforce. Office sector REITs face some serious challenges over the next few years.

As I noted, the Fed stopped increasing interest rates in July. Those rates are much higher now than two years ago, and, as I hope I have conveyed, it will take REITs several years to adjust to the new interest rate environment.

The Fed is expected to start lowering rates later this year, but the cuts will be minor compared to the magnitude of the recent increases. The Fed Funds rate will likely be around 4% by the end of the year. That’s still much higher than the near-zero percent in effect a few years ago.

REITs will adjust. Borrowing costs will change. Lease rates will increase as leases (outside of office buildings) will increase. Property values (less office buildings) will increase. As we go through the rest of this year and next, REIT management teams will adjust their business operations to return to historic profit levels and growth profiles.

REIT share prices will lead a recovery in business results. Stock markets are forward-looking, and the prospect of lower interest rates will renew investor interest in real estate stocks. I expect REIT values to start the next upward move in the second half of this year. It may happen sooner, but it may take a little longer.

I don’t recommend trying to time the upcoming REIT bull market. Instead, you can accumulate shares of the Hoya Capital High Dividend Yield ETF (RIET) and earn a 10% yield with monthly dividends while you wait.

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The timing of the launch of our new ETF Income Edge service was very fortunate—I see newly announced ETFs in this category hit my inbox almost daily, usually two or three at a time. We research, review, and recommend ETFs that use options strategies to boost yields or returns.

Many of these funds, especially some of the single stock covered call ETFs, sport eye-popping yields. While distribution yields are not the whole story, they do give us a lot to talk about.

As it happens, the prospectus of a new fund hit my desk last week, and I can’t wait to see the distribution payouts from this one – I think you’ll be interested…

The YieldMax ETFs have become popular with their single stock funds covering the most popular large-cap stocks. These funds have distribution yields ranging from 20% to over 100%. Yes, the YieldMax NVDA Option Income Strategy ETF (NVDY) has a current quoted yield of 108.46%. Yields change monthly depending on the declared dividends.

Recently, YieldMax issued a couple of fund of funds using the individual stock funds:

These two funds have paid just one monthly dividend, so the track record is nonexistent.

The latest fund from YieldMax, the YieldMax Ultra Option Income Strategy ETF (ULTY), truly intrigues me. However, this fund has only been trading for a handful of days, so it’s far too early to get a good handle on whether the strategy will perform as expected.

The fund has a subadvisor that will screen stocks for implied volatility, trading volume, and liquidity. The subadvisor will select 15 to 30 stocks for a covered call option trading strategy.

The underlying stocks can be purchased directly, or indirectly with a synthetic long position with short at-the-money puts and long at-the-money calls.

Portfolio income will be earned from selling calls against the underlying stock positions.

High implied volatility means that call options will be more expensive. For a fund that sells calls, the greater premium levels should produce a higher dividend yield than the more traditional covered call ETFs. The yield could potentially be a lot higher.

Actual performance from ULTY will not be apparent for several months. The fund is using a unique stock screening strategy to potentially generate higher returns and yields. I will closely watch this one and provide the ETF Income Edge subscribers with regular updates. To see how to join and get my updates as soon as I get them, click below.