The NASDAQ fell more than 12% over just one month, erasing half of its gains over the past 52 weeks. While earnings remain strong, investors are starting to second-guess the industry’s sky-high valuations. While retirees may have trouble stomaching the volatility, tech stocks are an indispensable driver of stock market returns.
Fortunately, new options-focused exchange-traded funds offer a middle ground for income investors by generating income from tech stock holdings. The result is more monthly or quarterly income for retirees and a modest buffer against downside risk.
In this article, we’ll look at two new active ETF options and whether they deserve a place in your portfolio.
AI & Tech Option Income
The YieldMax™ AI & Tech Portfolio Option Income ETF (GPTY) is an actively managed fund that seeks current income and capital appreciation via direct investments in a select portfolio of tech companies. By writing options against this portfolio, the fund also generates weekly income to bolster retirement income and provide a buffer.
While GPTY only recently launched, the fund has a nearly 40% distribution rate, which is the annual rate investors would receive if the most recently declared distribution remained the same going forward. But, of course, the distribution rate isn’t a guarantee of future income because the yield changes over time based on option contracts.
The trade-off for this high distribution rate is a cap on upside participation. When writing a call option, you’re selling someone else the right to buy your stock at a set price in exchange for immediate option premium income. Therefore, if the stock moves sharply higher, you may not receive all the upside.
The fund’s largest holdings include NVIDIA Corp. (12.67%), C3.ai Inc. (9.90%), and Palantir Technologies Inc. (5.87%), reflecting a more concentrated portfolio than its passively managed peers. Meanwhile, the fund’s 0.99% expense ratio is sharply higher than the industry average owing to its actively managed approach.
Crypto & Tech Option Income
The crypto industry has seen tremendous growth over the past few years. While the fundamentals differ from the broader tech industry, many investors are seeking exposure to Bitcoin and other cryptocurrencies to diversify their portfolios. And over time, these crypto assets could become alternatives to gold or new ways of making cross-border payments.
The YieldMax™ Crypto Industry & Tech Portfolio Option Income ETF (LFGY) is an actively managed fund that takes the same approach as GPTY, except targeting the crypto industry. While GPTY offers a nearly 40% distribution rate, LFGY offers a loftier 60% distribution rate, although it’s worth reiterating that these rates may not reflect the future.
The crypto-focused ETF holds companies like Microstrategy Inc. (16.56%), Coinbase Global Inc. (13.52%), and the iShares Bitcoin Trust ETF (9.28%). Many of these companies experienced a boom-and-bust beginning to the year following President Trump’s election, but their long-term prospects remain strong thanks to promises of deregulation.
Alternative Option-Focused ETFs
Retirees and other income investors may want to look beyond tech for other options to boost their portfolio’s earning potential.
Other Option-focused ETFs
These ETFs are sorted by their YTD total return, which ranges from -4.4% to 4.3%. They have AUM between $1B to $38B, with expenses running between 0.35% and 0.75%. They are currently yielding between 5% and 13%.
| Name | Ticker | Type | Actively Managed? | AUM | YTD Total Ret (%) | Yield | Expense |
|---|---|---|---|---|---|---|---|
| iShares 20+ Year Treasury Bond BuyWrite Strategy ETF | TLTW | ETF | No | $1.12B | 4.3% | 13% | 0.35% |
| JPMorgan Equity Premium Income ETF | JEPI | ETF | Yes | $38B | 0.3% | 6.9% | 0.35% |
| Amplify CWP Enhanced Dividend Income ETF | DIVO | ETF | Yes | $3.89B | -0.3% | 5% | 0.56% |
| NEOS S&P 500® High Income ETF | SPYI | ETF | Yes | $2.46B | -3.2% | 12.9% | 0.68% |
| First Trust BuyWrite Income ETF | FTHI | ETF | Yes | $1.04B | -4.4% | 9.6% | 0.75% |
The Bottom Line
Tech stocks have experienced a rollercoaster ride over the past year. While retirees may not be keen on the volatility, the industry has been a driver of returns over the past decade, making it indispensable to any portfolio. Fortunately, option-focused ETFs offer a balance between retirement income, risk reduction, and tech exposure.
When assessing any investment for your portfolio, you should carefully consider the fund’s performance, income, risk profile, and expense ratio. Diversification and asset allocation remain the most important drivers of overall performance, which means it’s essential to balance this exposure with other elements in your portfolio.
