QYLD - RYLD Yields 13.20% And Produces Better Results Than XYLD QYLD

Summary

• RYLD is a covered call ETF that yields 13.2% but sacrifices capital appreciation for current income by capping upside potential through selling covered calls.
• RYLD has been a better investment by the numbers since 2021 compared to XYLD and QYLD.
• If you are able to reinvest the distributions, an investment in RYLD does significantly better than taking the distributions as income.

2022 is in the books, and the spring of 2023 is around the corner. With bond yields and CDs exceeding a 4% yield, income investors have choices when allocating capital. This investing environment is a complete 180 for income investors, as anyone can generate a respectable yield without taking on equity risk. You can even receive a 3.75% APY from SoFi Technologies (SOFI) on savings and 2.5% APY on checking balances when direct deposit is set up. Hunting for dividend stocks that generate a 3% yield and assuming equity risk just isn't as appealing as it once was when these risk-free options are available. For investors looking for higher-yielding investments, the Global X Covered Call ETFs are still very interesting. These investment vehicles are not geared toward capital appreciation, and as a covered call ETF, they sacrifice capital appreciation to pay large amounts of monthly income. These ETFs are not right for everyone, but for those looking for large yields and monthly income, they are certainly interesting. I have updated all of the numbers, and going back to the beginning of 2021, the Global X Russell 2000 Covered Call ETF ( RYLD ) continues to outperform the Global X S&P 500 Covered Call ETF ( XYLD ) and the Global X NASDAQ 100 Covered Call ETF ( QYLD ).

RYLD, XYLD, and QYLD by the numbers since the beginning of 2021

What I did for this section, I went back to the beginning of 2021 and looked at the share price of RYLD, XYLD, and QYLD. I then looked at what an investment of 100 shares would have cost and tracked the distribution payments over the next 25 months, as February 2023 hasn't paid its distribution yet. For this comparison, I had each investment take the distributions as cash as if they were true income investments. Then I looked at what the initial investment was, what the current investment value was, the total distributions, and what the total ROI was. All distribution amounts and dates were sourced from Global X, and all share prices were sourced from Seeking Alpha. Here are how the numbers came out.

QYLD traded at $22.69 on 1/4/21. An initial investment would have cost $2,269. Over the next 26 months, QYLD's share price has declined to $16.31. The initial investment of 100 shares saw its value decrease by -28.12%. QYLD had delivered $520.83 of distribution income over this period, which was a 22.95% total yield on investment. When the distributions and the capital depreciation are netted against each other, the total ROI is -5.16%. Over the TTM, QYLD has paid $2.15 in distributions per share, placing its future initial investment yield based on the TTM at 9.5%.

XYLD traded at $46.16 on 1/4/21, placing an initial investment of 100 shares at $4,616. XYLD has seen its share price decline -13.19% over this period, placing the current value of 100 shares at $4,007. XYLD has paid $1,028.25 in distributions over the previous 25 months, which is a 22.28% yield on invested capital. When the capital depreciation and distributions are netted against each other, there is still $419.25 in profit remaining, unlike QYLD. The total ROI for 100 shares of QYLD is 9.08%. On a TTM basis, XYLD has paid $521.82 in distributions, placing its forward yield on the initial investment at 11.3%.

On 1/4/21, RYLD ETF was trading at $22.37, placing an investment of 100 shares at $2,237. RYLD has declined by -14.98% over this period, and the current value of 100 shares is $1,902. RYLD has paid $574.77 in distributions over this period, which is a 25.69% yield on invested capital. When the distributions and capital depreciation are netted against each other, RYLD is left with $239.77, which is a total ROI of 10.72%. In the TTM, RYLD has paid $251.02 in distributions which is an 11.22% future yield on the original investment.

RYLD and XYLD were neck and neck, but RYLD has produced better results over this period. RYLD has the largest total ROI based on percentage and the largest yield on invested capital based on the initial investment. Looking forward, RYLD and XYLD are within a tenth of a percent with their future yield on invested capital.

The investment difference if an investor had reinvested or taken the distributions as income from investing in RYLD since its inception

Income investors don't have to take the distributed income as cash; they can reinvest it. Some investors, such as myself, are income-focused investors without taking the distributions as income. I am reinvesting each distribution to build a larger stream of income on the income side of my portfolio. When RYLD went public on 4/17/19, shares were $25. Here is what an investment of 100 shares would look like today if you had taken the income or reinvested the distributions.

Excluding the February 2023 distribution since it hasn't been paid yet, by taking the income, RYLD would have generated $981.88 in distributions, and by reinvesting the distributions, RYLD would have generated $1,217.92. The yield on invested capital increased by 9.44% when the distributions were reinvested, and the spread between the two continues to grow as the month's progress.

By taking the income, the current value of the initial investment would have declined by -$598 or -23.92%. The $981.88 in distributions paid would have produced a 39.28% yield on investment. When the capital loss and distributions are netted together, the total ROI is $383.88 or 15.36%. Looking forward, based on the TTM, the forward projected annual income is $251, which is a 10.04% yield on invested capital.

If you had decided to reinvest the distributions, the investment outcome would change significantly. The initial share count would have increased to 154.30 from 100 shares over this period. This would put the current investment at $2,934.78 for a $434.78 profit or total ROI of 17.39%. By reinvesting the distributions, this investment would have generated $1,217.92, which is a 48.72% yield on invested capital. Looking forward, based on the TTM distribution of $2.51 per share, the additional 54.30 shares will add $136.29 to the projected annual income. By reinvesting the distributions, the projected annual income would now be $387.29, which is a 15.49% yield on invested capital rather than 10.04% when the distributions were taken as monthly cash.

Conclusion

Covered Call ETFs are not for everyone and are not a great investment for capital appreciation by any means. Investors should research these funds extensively prior to allocating capital toward them. By the numbers, RYLD has outperformed XYLD and QYLD since 2021, when the distributions are taken into consideration. I am currently reinvesting each monthly distribution as the investment generates a larger ROI, and the projected annual income continues to grow. I am a fan of the covered call ETF strategy from an income perspective, and if I had to do it over, I would have gone heavier into RYLD rather than QYLD.

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