What You May Have Missed This Week...

While I maintain my position that Treasury bills remain the best deal in the fixed income space today (who wouldn’t want a virtually risk-free 5% yield?), there’s little question that corporate high yield bonds have been one of the best-performing segments.

Over the past year, only five fixed income asset classes have returned more than 10% - preferreds, convertibles, EM debt, bank loans and U.S. junk bonds. Of that group, U.S. junk bonds have easily seen the biggest net inflows over that time. Therefore, we could conclude that investors are leaning heavily into this group for any kind of yield above and beyond what T-bills are offering.

As much as I appreciate the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), there are a few quirks that make me hesitant. First off, while it focuses on companies from the S&P 500 with 25 years of consecutive dividend growth, it lacks deeper quality screens like payout ratio and dividend growth rate.

But what really gets to me is its equal-weighted methodology. Why treat all dividend aristocrats the same? Even a market cap-weighted approach might better highlight the strengths of true blue-chips. Personally, I'd prefer a method that leans into yield weighting to better reflect dividend contribution to total return.

Enter the SPDR S&P Dividend ETF (SDY).

YieldMax has gained a strong reputation for its high yield option income strategies with a robust lineup of about two dozen ETFs that primarily target highly volatile tech stocks. Among the other offerings include ETFs based on Microsoft, Amazon, Apple, MicroStrategy, Coinbase, and Tesla.

The appeal of these ETFs lies in their potential to generate substantial yields. Stocks that exhibit greater volatility tend to see higher prices on their corresponding option contracts. YieldMax uses this feature to its advantage with its ETFs.

For shareholders of the Schwab U.S. Dividend Equity ETF (SCHD) over the past several years, the past year and a half has been a rough ride. In 2023, its 4.6% return landed it in the 89th percentile in Morningstar's Large Value category. Its 6% year-to-date return falls in the 91st percentile. Within the dividend ETF universe, its 1-year return ranks 109th of 163 funds. Looking at just U.S. focused dividend ETFs, it's #67 out of 97.

It's important to point out that SCHD's sector allocation looks nothing like the S&P 500. If you were expecting this fund to outperform the broader market during a year when the AI boom has dominated the narrative and investors keep pricing in rate cuts later this year, you were bound to be disappointed. But there were some areas of the market that provided a boost.

Temporary fee waivers have brought the current expense ratio on many bitcoin ETFs down to 0% for the time being.

As it stands currently, Fidelity, VanEck, Invesco, Franklin and WisdomTree are currently waiving all fees based on the criteria laid out by them. Grayscale has been charging the full 1.50% this whole time. iShares, ARK, Bitwise and Valkyrie have either surpassed the asset thresholds for waiving fees or the fee waiver period has run out.

But we can't just look at the expense ratio. We have to consider the "total cost of ownership", which looks at the expense ratio plus trading costs.

The Global X Nasdaq 100 Covered Call ETF (QYLD) and the Global X S&P 500 Covered Call ETF (XYLD) were among the first buy/write option income ETFs in the marketplace and, for a while at least, were the biggest. They're still very popular among income seekers looking for straightforward index coverage with a 100% option overlay strategy.

But yields have dipped a bit recently, although they're still among the highest yielding options in the covered call space. QYLD is currently paying an annualized yield of 11.5%, while XYLD has shrunk to 9.9%. To understand if this is anything that income seekers should be concerned about requires a breakdown of the fund's strategy and its return profile.

State Street is unquestionably one of the ETF industry heavyweights. It manages more than $1.2 trillion dollars of investor money across nearly 100 different funds, two dozen of which have expense ratios of less than 0.10%.

The SPDR lineup has almost everything an investor would need. Its broad market funds cover large-, mid- and small-caps. They offer 30 different sector-level ETFs that allow for easily tilting towards any particular area of the market. Fixed income market coverage is expansive and there are additional offerings within commodities, thematics and target risk strategies.

The Pacer U.S. Cash Cows 100 ETF (COWZ) has been around since December 2016. Its strategy is backed by years of history and study confirming that companies that do a better job of generating free cash flow produce better returns.

Today, Pacer is now firmly on the ETF marketplace map. It operates nearly 50 ETFs with COWZ residing as the tentpole of its "cash cow" strategy lineup. Even though it's the largest, COWZ might not be Pacer's best ETF. In fact, it might not even be the best "cash cow" ETF in the lineup! In my opinion, that title goes to the Pacer Cash Cows Fund of Funds ETF (HERD).