Thesis
YieldMax Universe Fund of Option Income ETFs (NYSEARCA:YMAX) is an exchange-traded fund. The fund falls in the "fund of funds" category, meaning that it will primarily invest its assets in other YieldMax ETFs. The appeal for this name lies in the eye-popping 44% distribution rate, which is real, and we are going to fully analyze it in our article.
In this piece, we are going to walk readers through YMAX's composition, its risks and rewards, and highlight why an investor ultimately takes a long position in a handful of popular large capitalization stocks via this ETF.
ETF composition - the YieldMax fund family
The fund is an aggregator, meaning it contains a list of other ETFs from the YieldMax fund family:
We can see how the name contains the AMD YMax ETF, the COIN YMax ETF and the Meta YMax fund. Let us take a detailed look through one of these names so that we can get a better sense for what they do, and how they fit in the picture.
However, before we do that, please note the weightings for each name within the YMAX context - each underlying fund has a roughly 5% weighting, meaning the YMAX fund contains 20 individual names which are equally weighted in the fund.
Let us have a closer look at the COIN ETF as an example:
YieldMax COIN Option Income Strategy ETF (CONY) is an exchange traded fund which uses options to build a synthetic long position in Coinbase (COIN), with a capped upside profile but a downside resembling the stock:
The Fund’s strategy will cap its potential gains if COIN shares increase in value. The Fund’s strategy is subject to all potential losses if COIN shares decrease in value, which may not be offset by income received by the Fund. The Fund may not be suitable for all investors.
The option strategy ensures a high distribution rate and has matched COIN's total return profile in 2024:
For any options-based ETF, it is important to ensure an investor runs a 'total return' when comparing performance. CONY and COIN have had similar total returns in 2024 given COIN's moves, but CONY lags on a 1-year basis given the substantial move in COIN:
The more substantial the upswing in an underlying stock, the larger the lag exhibited by the YieldMax funds.
The distribution is real
An investor can find the YMAX distribution rate on the fund's main page:
This distribution is real, and we can quickly do a spot check. If we go on the Seeking Alpha platform under the Dividends tab under Dividend History, we can see the fund paying a monthly dividend of 0.73 as of June 2024. If we annualize it (0.73 x 12) and divide it by the stock price of 19.5/share, we get the 44% distribution rate.
Mind you that YMAX simply passes down to investors the distribution it gets from the underlying 20 ETFs in its composition. The YieldMax fund family aims to extract dividends from large popular stocks via options strategies. The dividend only exists as long as the underlying stocks appreciate in value.
Once the underlying stocks stagnate or go down in price, the distribution rate will move down as well. A retail investor needs to understand that while the distribution rate is real, it will change downwards if the underlying stocks underperform. This is not a fixed 44% that you will get in perpetuity, and it simply reflects the current upward momentum in certain underlying stocks.
Comparing YMAX to its components
We have already established the YMAX needs to be looked at from a total return perspective:
The fund is up over 22% from a total return perspective in 2024. Let us look at how its components have fared:
What we did is extract the year to date performance on a price basis for each underlying stock in the YMAX portfolio. So for COIN for example, when looking at the underlying stock we can see it is up 27% in 2024:
We did the same exercise for each name in the portfolio, then proceeded to weight each one by the 5% weighting in the underlying ETF. The general idea is to see what the difference would be between holding YMAX and just holding outright each underlying stock with a 5% weighting.
The end result for the outright long portfolio is 24.2%, versus a 22.8% return for YMAX. The ETF has therefore done a very good job in converting the underlying portfolio returns into a high monthly dividend yield. In essence, via YMAX, a retail investor is holding the above equity portfolio, but YMAX does the dividend extraction automatically every month via its structure. An investor outright the stocks would be up 24.2%, but they would need to sell a portion of each name in order to realize the respective capital gain for the year.
Risk factors
A retail investors need to understand that YMAX is not a fixed income ETF. The distribution rate is purely based on the volatility and appreciation of the underlying equities. If the stock market tanks, YMAX will move down as well, as so will its distribution rate. The downside profile for YMAX is comparable with holding the underlying 20 stocks outright.
A hard landing or prolonged recessionary period can cause havoc for many underlying stocks in the portfolio, and we should look no further than Coinbase:
The COIN equity experienced a -80% draw in 2022, and represents a high beta play in the equity market.
Conclusion
YMAX is an exchange-traded fund. The vehicle acts as an aggregator, or 'fund of funds', containing 20 individual names from the YieldMax family with a rough 5% individual weighting. The best way to think of YMAX is as a means of extracting high distributions from its underlying names via options strategies. YMAX has a total return profile which is similar to holding the names outright with a 5% weighting, return profile which will lag if the underlying names move up exponentially. The downside profile is equivalent among the two. The 44% distribution for the name is real, but dynamic. If the underlying names lose value, the distribution will go down, as well as the fund NAV and price. YMAX is up over 22% in 2024, and will continue to generate high returns as long as the popular large capitalization names in its portfolio continue to appreciate in value.