Two ETFs Seeking to Generate Option Income and Upside Potential

Investors now have a way to seek strong current income powered by Nasdaq Dorsey Wright’s technical analysis research and momentum-based indexing.

Two ETFs from YieldMax, FEAT, and FIVY, offer strong potential total returns that give investors the power of a potentially high distribution rate and diversification. Both ETFs are passively managed. FIVY uses a hybrid methodology, and FEAT uses a concentrated portfolio.

FEAT, The YieldMax® Dorsey Wright Featured 5 Income ETF

FEAT is for investors who are seeking weekly income potential. The ETF selects five of YieldMax’s option-income ETFs, each of which tracks a single company or a single underlying security. Every month, Dorsey Wright runs its proprietary momentum ranking system across the universe of eligible YieldMax-linked ETFs and picks the top five. Those five are then equally weighted in FEAT.

This approach gives investors an easy way to gain equal weight exposure to the current winners across a range of option-income ETFs. This targeted exposure to high-momentum assets positions investors to potentially benefit if the selected securities continue their positive trends.

FIVY, The YieldMax® Dorsey Wright Hybrid 5 Income ETF

FIVY is similar to FEAT but give investors a portion of income from option premiums, plus partial exposure to equity upside (and downside). For each of the five underlying components, FIVY holds both the YieldMax option-income ETF and a direct stake in the underlying equity (or ETF) itself. The target internal weighting is typically 60% in the option-income ETFs, and 40% in the underlying shares.

Investors in FIVY get the dual benefit of potential yield and growth offering a more balanced strategy. Like FEAT, the FIVY ETF generally focuses on providing regular cash distributions.

The Dorsey Wright Methodology

The Dorsey Wright methodology aims to identify major price movements while filtering out minor price swings that make up a lot of the noise in the equities market. The methodology also evaluates each security’s relative strength to other securities to better identify those with strong momentum. It then ranks the securities by buy signal frequency, prioritizing those with the strongest positive momentum. By analyzing both short- and long-term indicators the methodology seeks to identify opportunities while minimizing turnover.

The Power of Momentum

In a research paper titled “Fact, Fiction and Momentum Investing,” AQR Capital Management determined that “trend following has delivered strong positive returns and realized a low correlation to traditional asset classes for more than a century.” Their work reviewed the results of momentum investing over a period of 100 years.

A Great Choice for Investors Seeking High, Regular Cash Flow

FEAT, and FIVY are suited for investors willing to accept drawdowns in exchange for income, and who might reinvest distributions.

Those who looking for a semi-automated, rules-based basket, of ETFs can benefit from these two ETFs rather than take on the work of picking individual covered-call ETFs or single stocks.

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