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Income ETFs Delivering Strong Returns in 2023
Investor Interest in Income ETFs Continues Despite Market Rally
Despite the market rally, the investor interest in income-themed exchange-traded funds (ETFs) has continued throughout 2023. A new group of income ETFs is delivering the best returns by combining equity exposure with income-generating option strategies. This has helped these ETFs find a foothold with the investors.
Combining Growth and Income – A Winning Strategy
This year, investors have seen that a combination of growth and income can be a winning strategy. Based on FactSet data, the Global X Nasdaq 100 Covered Call & Growth ETF (QYLG) has been the best performer amongst income ETFs with at least $50 million in assets, delivering a total return of 26.1%. The QYLG ETF invests in growth stocks with a covered call strategy that generates income by sacrificing some upside.
Top Performers Among Income ETFs in 2023
The JPMorgan Equity Premium Income ETF (JEPI) was the best performer amongst income ETFs in 2022 and has continued to grow despite underperforming in 2023. The JEPI ETF's sister fund, the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ), is also performing well with a return of more than 22% year to date. The equity component of the JEPQ fund is focused on growth stocks, while JEPI's stock selection is more closely aligned with a value strategy.
Funds That Make Sense for Defensive Play
Requisite Capital Management's Bryn Talkington mentioned that the JEPQ fund made sense in a "final trade" on CNBC's "Halftime Report" on June 22, 2023. The fund is an ideal investment if you missed the tech run-up or you want a more defensive way to play it.
Big Year for the YieldMax TSLA Option Income Strategy ETF
Performance and Liquidity are a Challenge for Derivatives-based Funds
Derivatives-based funds are growing in size and pose a challenge to performance and liquidity. The JPMorgan Equity Premium Income ETF (JEPI) is now at $27 billion in assets, while the Schwab U.S. Dividend Equity ETF (SCHD) has raked in about $4.6 billion despite having negative total returns in 2023. However, ETF issuers are launching similar products to JPMorgan's popular income fund, giving investors more options to find yield without leaving the equity market.
Creating New Ways to Access Long-established Markets
Sara Levin, the Director of ETF and Derivative Trading at WallachBeth Capital, said that ETFs are creating new ways to access long-established markets. Some of these strategies that we're seeing in these derivative ETFs have been around for a really long time, said Levin. The ETFs are creating a new opportunity for investors to access yield within the equity market.
The continued growth and interest in income-themed exchange-traded funds (ETFs) present a unique opportunity for new businesses seeking to enter the investment market. As seen with the best-performing income ETFs in 2023, a combination of growth and income can provide a winning strategy for investors. This presents an opportunity for new businesses to differentiate themselves by offering income ETFs with unique equity exposure and income-generating option strategies.
One fund to consider is the YieldMax TSLA Option Income Strategy ETF, which has had a big year with a total return of 22.7% through last week. This is a testament to how funds that write calls on popular stocks are gaining traction amongst investors. New businesses can take advantage of this trend and offer unique ETFs that write calls on other popular stocks.
Furthermore, despite the challenge of performance and liquidity for derivatives-based funds, ETF issuers are launching similar products, providing potential investors with more options to find yield without leaving the equity market. New businesses can capitalize on this trend by launching their own derivatives-based income ETFs.
The continued interest in income ETFs presents a unique opportunity for new businesses. By combining growth with income and providing unique equity exposure and income-generating options, new businesses can differentiate themselves from established players in the market and attract potential investors.
