WKLY - TGIF: Weekly Dividend Fixed-Income ETF

Summary

• TGIF launched just over two years ago, time to revisit this fund.
• The biggest standout feature is the weekly dividend schedule.
• At the same time, it's still a rather low-yielding fixed-income focused fund.

Written by Nick Ackerman, co-produced by Stanford Chemist. A version of this article was originally published to members of the CEF/ETF Income Laboratory on December 19th, 2022.

SoFi Weekly Income ETF ( TGIF ) launched over two years ago now. We haven't touched on this fund since it launched. So it is time to revisit this fund to see whether it is worthwhile. In the first year, the fund enjoyed riding the wave higher. On the other hand, over the last year now, the fund has enjoyed a slide lower. That isn't anything against the fund specifically, as that was the same trajectory of most stocks and bonds through 2022.

The immediate standout feature of this fund is the weekly pay. Only one other fund I know of offers this in the market; it's the cousin fund offered from the same sponsor, the SoFi Weekly Dividend ETF ( WKLY ). That fund focuses on equity positions.

That said, while the weekly pay feature is nice, the yield is fairly low. Even after a bump to $0.07 per week, that works out to a dividend yield of 3.83%. The iShares iBoxx $ High Yield Corporate Bond ETF ( HYG ), a passively managed high-yield fund, offers a twelve-month trailing dividend yield of 5.62%. The iShares iBoxx $ Investment Grade Corporate Bond ETF ( LQD ) has a yield of 3.42%.

Albeit, HYG and LQD are the more traditional variable payer that sees the dividend change every month based on the interesting flowing in. TGIF has held the rate steady or increased it since it launched.

TGIF has the potential to invest in both investment-grade and high-yield. However, looking at the largest holdings in the fund would seem to suggest they put a heavier emphasis on high-yield bonds. The performance of the fund also correlates closer to other high-yield peers.

The Basics

• Dividend Frequency: Weekly
• Dividend Yield: 3.83%
• Expense Ratio: 0.59%
• Leverage: N/A
• Managed Assets: $23.8 million
• Structure: Active ETF

TGIF's investment objective is quite simple, they "seek to provide current income." To achieve this, they will actively manage the portfolio and provide exposure to over 100 bonds. That includes investment-grade and high-yield. They are managed by "Income Research + Management, a value-oriented manager with over 30 years of experience."

IR+M, as they refer to themselves, is a "privately-owned, independent, fixed-income investment management firm that serves institutional and private clients." They mention, "Our investment philosophy and process are based on our belief that careful security selection and active risk management provide superior results over the long term. By combining the capacity and technology of a larger firm with the culture and nimbleness of a boutique firm."

Another focus of the fund is to focus on a short duration. They will "target a duration of less than 3 years, with a goal to reduce interest rate risk relative to longer-dated bonds." As interest rates are rising, that's an important aspect of the fund. Unfortunately, in looking through the material, I wasn't able to find any exact duration on the fund provided.

I think one of the notable things here is the size of the fund. It is quite tiny, and that's been how it has been since the launch. It hasn't seemed to gain too much attention since launch. SoFi is a relatively newer player in the market, so they might be okay with small funds for now. However, if this was a larger sponsor, I'm not sure how much longer they'd keep such a small ETF around.

A problem with small funds comes from liquidity. It brings about a problem with shareholders buying and selling with a large spread between the bid/ask. The average daily trading volume here is 2203 shares. Here's the latest bid/ask from Yahoo Finance.

Another thing that a small fund brings with it is generally a higher expense ratio. This is an actively managed ETF, so seeing an expense ratio of 0.59% isn't too bad. If we compare it to HYG, that comes in at 0.48% - and that's a passively managed fund that seeks to track an index. So, in this case, it isn't seemingly too detrimental to the fund. LQD, on the other hand, the investment-grade corporate bond ETF, charges only 0.14%.

On the other hand, if we look at a relative basis, we see some encouraging signs. Encouraging in the way of this fund to be viable for the sponsor to keep around for those investors that like this fund. For the period ending February 28th, 2021, they had around $20.8 million in assets. So there has been some growth despite a NAV that has fallen since then due to market depreciation.

Performance - Short-Duration Helps

The fund is actively managed; therefore, it could see some big divergence from the index it is tracking or its peers. When looking at TGIF relative to HYG since the fund's launch, the fund has performed better. This was more apparent in the more recent performance. This could come back to the lower duration focus.

Mostly, high-yield bonds naturally have relatively shorter durations due to shorter maturities relative to investment-grade bonds. The effective duration for HYG was last reported at 3.98 years. For TGIF, once again, we don't have a specific, but if it's around 3 years or less, that could be the reasoning. As interest rates were rising rapidly this year, it would have helped TGIF hold up better.

TGIF uses the Bloomberg Barclays 1-3 Year Credit Index, which more appropriately classifies the fund due to its shorter-duration focus. With that being the case, we can compare to other high-yield funds such as iShares 0-5 Year High Yield Corporate Bond ETF ( SHYG ), with its 2.5-year duration. We can also include the Vanguard Short-Term Corporate Bond Index ETF ( VCSH ). The duration for VCSH is 2.7 years, and this fund invests primarily in investment-grade bonds.

In that case, we see the fund has underperformed SHYG. Against VCSH, it had performed much better. It would seemingly mean that the short duration is helping the fund overall, but it hasn't helped the fund against a more similar high-yield-focused peer. It correlates much more closely with SHYG, highlighting the junkier focus.

Here is a look at the YTD results for total returns between these five funds.

Dividend - Weekly Pay

The latest boost in the dividend is encouraging as it took it from $0.05 per week to $0.07. That was quite the increase, and it seems well warranted given the net investment income or NII the fund was able to generate. Coverage for the six months that ended August 31st, 2022 , came to 125%.

That type of coverage is also what led to the special of $1.273 being paid at the end of 2022. In 2021, they also paid a large special. So they certainly appear to be earning much more than the regular dividend.

This was also quite the jump from the NII produced last year. On a per-share basis, it went from $2.56 to $1.70 or annualized $3.40. Since new shares of ETFs can be continually issued and destroyed, a per-share basis makes more sense to look at.

However, one might notice that $3.40 annualized isn't actually enough to cover the now anticipated $3.64 annual dividend. This could imply that the fund is earning more income now than they were earlier this year, which is certainly possible. I think it's possible because of the shorter maturities in the portfolio. They should be turning over their portfolio and investing in higher-yielding bonds than were available a year ago.

All this being said, I think my main takeaway is that the lower yield here is more noteworthy for the regular dividend. A yield of 3.83% compared to HYG's 5.62% is a big difference. One might think that the presumably longer duration/maturity of HYG's portfolio is the cause for this.

However, even looking at SHYG's 12-month trailing yield, that comes to 5.96%. Meaning that a shorter-duration portfolio should be benefiting more now because of the relatively shorter maturities. That means their portfolio is turning over faster and getting into the now higher-yielding instruments being offered.

At the same time, LQD's 12-month trailing yield did come in at 3.42%. We know that TGIF holds at least some investment-grade but generally seems to be tilted higher into junk bonds. At least that's what the performance reflected, but not what the yield is showing. We also see the higher turnover being played out with VCSH. We see a yield of 2.37% but a 30-day SEC yield of 5.01%.

So the income expectation is expected to rise faster for TGIF, VCSH and SHYG. However, TGIF still isn't delivering the same yield as its peers. Unfortunately, TGIF doesn't provide exact stats of maturity or duration. It also doesn't provide any credit quality breakdown or recent industry breakdown.

In the fund's semi-annual report, we can see the breakdown of industry exposure, but we have to look through the holdings list. With that, we don't have any of the pretty much standard reporting that other funds provide that could help give us a deeper understanding of the fund at a quick glance.

TGIF's Portfolio

Where the fund lacks in other reporting, they, fortunately, provide a daily listing of holdings, including a breakdown of the top ten. In total, they have 180 holdings. That's up from the 35 positions they held two years ago when they were first getting the portfolio up and running.

With a greater number of holdings, there should be more diversification. Each weighting in the fund represents a smaller portion of total assets. That can be beneficial when we get into tough economic conditions, as a handful of bankruptcies shouldn't derail the entire fund.

The top ten was 38.64% of the fund's allocation, with a sizeable 9.82% allocation to cash. Cash is minimal, and the top ten are around 13.2% of the fund's total assets. The top position belongs to a Ford ( F ) bond. Interestingly, a Ford bond was also the top holding after cash two years ago. It's a different bond, but it still shows exposure to the same company.

Also interesting to note is the fund's allocation to U.S. T-Bills. That's basically an extension of cash. Putting cash and the T-Bill allocation together, we see an allocation of 2.83%. That would put it at the top position once again.

Conclusion

TGIF is an interesting fund that provides weekly dividends. This is an interesting concept, given a lot of people in their working years get paid weekly. It's something that could be welcomed in retirement. A more frequent pay schedule can see compounding take place just a bit faster.

Performance in the fund has been about what you might expect. It is coming out in the middle of the short-duration passive investment-grade and high-yield ETFs. That being said, it correlates closer to the high-yield side of the equation. At the same time, the yield is coming in materially lower.

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