Introduction
I wrote two articles about YieldMax Option Income ETFs CONY and MSTY based on the high yield and Cryptocurrency prosperity. I was a little hesitant to write about YieldMax Option Income ETFs for fast-growth technology companies, like Magnificent 7. I have many such stocks in my growth portfolio already, so I don't want to add more growth exposures to my income portfolio. Now, I've realized that there are income-focused investors who may not own these often richly valuated stocks, but they deserve to get their fair share of some of the best that the market has to offer.
YieldMax Universe Fund of Option Income ETFs (NYSEARCA:YMAX) is my top choice for these income investors to get exposure to some of the hottest markets out there, such as the fast-growing AI chip market, bitcoin market, etc. YMAX pays ultra-high dividends with a distribution rate over 40% by my estimation. With all constituents in the portfolio deploying the same highly repeatable option trading strategy over the highly popular and volatile stocks, the sustainability of the high-yield distributions of YMAX is largely guaranteed. Guarded by the equal weight of the portfolio, I would sleep well at night (aka SWAN) with my YMAX holdings, knowing that the market is working hard to issue fat checks to me every month.
YMAX ETF Highlight
The YMAX ETF appears to be a pretty straightforward ETF for those who know the individual option income ETFs from YieldMax. Interested readers can take a look at one of my previous articles on YieldMax. YMAX is simply an equal-weighted ETF of all YieldMax option income ETF funds available right now. The following is a list for the 19 holdings reported by marketchameleon.com:
Note that a total holding of 19 is often considered to be the minimum for diversification of an equal-weight portfolio. The more recent update shows a total of 21 of SA's information about YMAX Holdings. With more YieldMax EFTs expected to come along, I believe that YMAX total holdings will increase well into the 20s soon. This will make it a more solid diversification base. Notice that YMAX actually solves a key critical issue, "Non-Diversification Risk," for having only one underline with the individual constituent ETFs.
The diversification lowers the volatility for the YMAX portfolio significantly, as shown below.
The 52-Week HV is 17.6, which is much lower than those of the individual constituent ETFs, some of which could reach as high as 60. I view this as the key feature for this ETF.
YMAX ETF is a very new ETF with an only about 4-month lifetime so far. Like many of its constituents, YMAX is expected to offer ultra-high dividends. The ETF has paid a total dividend of $2.4654 since its interception on 01/16/2024. For estimating the yearly yield, I just multiplied the dividend paid by 3 to get a total of $7.4 for the year. This represents a rather conservative 36.5% yield. The more aggressive calculation is to use the last payment of $0.7317 for the remaining 8 months of the year, it will give a total of $8.32, representing a 41% yield. Based on my experience, it is difficult to find an equity fund that pays a 41% yield with a historical volatility lower than 20.
The fund has total assets of $169 million so far per SA stats. The expense ratio is 1.28%, which is a bit higher than the constituent ETF at around 1.01%. But the expense is still really small considering the near 40% yield.
A new form of SWAN in the works?
In my previous article, I suggested "having a very good patience" with the YieldMax ETF positions with respect to both opening and holding positions. It certainly applies to YMAX as well because lower price points will always exist for patient buyers to get better deals, while existing shareholders should just hold for a long time and get the big checks every month.
Here I want to elaborate and extend the point to SWAN (Sleep Well At Night), a concept that often refers to safe, low-risk, and low-volatile holdings in the portfolio. SWAN dividend stocks are highly desired by income investors, especially by those who are passive investors.
I believe that YMAX could become the new SWAN alternative. The following includes some of the key tenets I'm considering for this new SWAN based on YieldMax ETFs characteristics:
- Long-term business is very promising with a huge total addressable market (TAM). That is the key reason why there will be a lot of money pouring into it from the capital market. Take AI Chip market as an example: it is estimated to reach $210.50 billion in 2027 as projected by a technavio report. It is also possible that the AI market could grow bigger in the next decade. The rest of the market segments in YMAX constituents all tend to have a huge market potentials in their respective industries.
It offers exposures to the best companies in the business. The Magnificent 7 are great examples. They are the best companies in their industries. Keep in mind, it often implies exposures to the best technology products in the market.
The biggest enemy to the old SWAN is high volatility. However, for the new SWAN, the volatility is your friend in terms of earnings. The higher the volatility goes, the higher income you will receive on the individual ETFs. I consider this as the best benefit the option market can offer. In principle, YieldMax Option Income ETFs all follow the same option strategy. I have a volatility model that can be used to check the quality of the individual ETF in taking such advantages. YMAX takes the best of both sides because its individual holdings make earnings out of the high volatility, while the fund uses equal weights for 21 holdings to reduce the volatility at the portfolio level.
- It offers better safety. Similar to Buffett's view, I also view the loss of the principal as the ultimate risk for investment. With an ultra-high yield of over 40%, I can get my principal back fast. I can't think of any other stock that could give me such peace of mind.
- I don't really have to worry of anything in the short run. The Option Income ETFs seem to make the best out of the stock and option markets. I call it "They trade, I earn." The more they trade, the more I earn. It is different from the traditional "They earn, I earn," or the more they earn, the more I earn. I know earning is hard for companies, but trading is much easier in the market. I am sleeping the best when I know that the markets are working hard to make me excellent dividend income.
I believe that YMAX, as an ETF portfolio with 21 individual ETFs, is the best fit for the new SWAN of ultra-high yield. For that reason, I recommend a strong buy on YMAX. As I indicated earlier, it is rare to find an equity with a yield over 40 but with a volatility in the teens.
Risks & Caveats
YMAX ETF and its constituent ETFs are taking advantage of the current market characteristics, especially through collecting the option premium off its high volatility. It is possible market behavior could change over the time. This may affect dividend distributions as well as the ETF stability itself.
The distribution is going to vary from month to month based on the volatility variance of the holdings. I used two ways to extrapolate the one-year yield for YMAX in this article. The actual yield could be less than my lower estimate. Income investors should keep such potential variances in mind when they look at the dividend earnings.
The ETF price gain could appear to be a disappointment to some investors who may have certain performance targets in mind. The price decay is quite possible if the market is in a bit of a down-turn stretch. The income investors may have to put some of the earning back into the fund in order to keep the income yield from falling off their target thresholds.
Conclusion
YMAX is an ETF for YieldMax Option Income ETFs. It inherently produces an ultra-high yield, estimated around 40%. It offers better diversification and a lower volatility portfolio than the individual YieldMax ETFs. I consider it as a new type of SWAN investment and recommend a strong buy for the income investors.
Wise Bull
Advanced education in economics, business management and engineering. Professional experience with product management and development in high tech industry, including advisory with multiple fintech startups. Have been investing in growth companies since 1998. Recent interest of investment also includes income-focused portfolio, fund-based approach.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in YMAX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
