Hello again friends, I hope you’re doing fantastic this morning. It’s very cold where I am today and it’s got me feeling thankful for my heater. I hope where ever you are you’ll thank Jesus for every big or little thing He’s currently doing in your life.

With that, I want to dive in to a relatively new fund I’ve invested in, the TSPY ETF from TappAlpha. The fund and the fund manager are both very new to this game so it should be interesting to see how TSPY performs moving forward.

Also, for those interested, I recently watched an interview with the TappAlpha founder and they have some new ETF’s on the horizon. Stay tuned to TappAlpha.com for more on that, I know I was interested in a few he mentioned. If you want to watch that interview here it is on Youtube.com. Lastly, if you want to see how it’s performed for me, find it here in my Unqualified Portfolio.

Post Agenda

TSPY ETF

TSPY ETF Overview

The TappAlpha SPY Growth & Daily Income ETF (TSPY) is a new ETF launched in August of 2024. They’re chief aim with the fund is to provide investors with current income while maintaining the prospect of capital appreciation. TSPY is listed on the Nasdaq exchange and is invested in large-cap equities through its SPY holding. The fund has assets under management (AUM) as of today totaling $13.57 million, which is relatively small compared to similar ETF’s.

Key Statistics

As we uncover the TSPY ETF in the sections ahead we’ll have a greater understanding of the fund and how it may perform. However, for now, I thought it would be important to offer some of the most important statistics first for anyone just needing the basics to know if the ETF is for them. If it is, then you’ll be able to follow along below. If it isn’t for you, then you won’t have to venture to far into this post.

  • Expense Ratio – 0.68%
  • Current Dividend Yield – 13.89%
  • Dividends Paid (ttm) – $3.52
  • Most Recent Ex-dividend date – January 8, 2025
  • 52-Week Price Range – $23.98 – $26.96
  • Current Price – $25.39
  • Inception Date – August 14, 2024

TSPY Investment Strategy

First, for those wanting to hear the strategy straight from the camel’s mouth, check out this interview with TappAlpha’s founder Si Katara on the Wealth Adventures Youtube channel. That video will provide at least the ability to form an opinion about the funds potential.

The TSPY ETF has a primary objective that is two sided. They first want exposure to the S&P 500 through the SPY ETF. SPY is the largest and most liquid ETF in the world, at least to my knowledge. TSPY’s second objective is daily covered call options for income generation.

TSPY uses what they call “fintech” or proprietary financial technology to constantly evaluate various risk factors and performance. This fintech is designed to provide investors with stable income, capital appreciation, and risk mitigation techniques to improve returns.

Here are the key points to note about the TSPY ETF and their investment strategy.

  • Hold SPY ETF shares
  • Write OTM 0 Day’s to Expiration (DTE) call options
  • Fintech identifies optimal strike prices
  • Fintech monitors and evaluates volatility and risk factors
  • Potential for TSPY to outperform SPY
  • TSPY maximizes time decay through 0 DTE call options

Fund Holdings

TSPY is almost entirely concentrated into the SPY ETF, with 99.5% of it’s assets housed there. Thus, TSPY is just a wrapper around SPY with the daily options strategy included for income. If you’re seeking exposure to another sector or market entirely then the TSPY ETF wouldn’t suit your investment target.

However, if you’re seeking broad market exposure to the top 500 U.S. companies but want to mitigate some downside risk with income then the TSPY ETF may fit the requirement. In all, TSPY is solely focused on the SPY ETF and income generation through options. Thus, return characteristics for the TSPY ETF will follow the volatility and performance of the SPY ETF itself.

TSPY ETF Performance & Yield

As a new fund, TSPY does not have much of a historical track record. Meaning, it’s impossible as I write this to know how the fund will respond during a bear market. Since TSPY’s inception the market has been mostly bullish with SPY returning approximately 8.5% during that period. For comparison, TSPY has returned about 4.5% not including the dividend yield. If you include the current income return of about 4% then TSPY is almost directly in line with SPY on a total return basis.

TSPY has a stated objective of returning about 12 – 14% in income to investors. If they’re able to achieve that target consistently and the above performance continues it would be possible for TSPY to outperform the total return of the SPY shares it holds. For instance, if SPY returned 12% in 2025 and TSPY returned half of that at 6% but also included a 12% dividend, then TSPY would have returned a total of 18% to SPY’s 12%.

This may be wishful thinking given the nature of capping upside with the daily covered call approach but based on the information today, it’s entirely possible. Much of that possibility however rests on the the financial technology TappAlpha boasts and where strikes are placed on each daily call option.

Tax Considerations & Dividends

First, it’s always important to speak with a qualified tax professional to verify claims about TSPY or any fund because I’m not a tax professional.

That said, distributions from TSPY could be treated as either qualified or non-qualified dividends. To be eligible for qualified dividend tax rates an investor must hold TSPY for at least 61 days during the 121-day period beginning 60 days before the ex-dividend date. In short, to achieve favorable tax treatment avoid trading in and out of the fund.

Non-qualified dividends or ordinary dividends are generally taxed at the standard income tax rate. Achieving qualified dividend status would tax the income from TSPY at the lesser capital gains rate. Non-qualified dividends are taxed up to 37% depending on an investors tax bracket and the tax on qualified dividends is capped at 20%.

Potential Benefits for TSPY

  • Income generation – A target dividend yield of 12 – 14%
  • S&P 500 Exposure
  • Capital Appreciation
  • Liquidity – TSPY is new and liquidity is very light but the underlying holdings in SPY remain highly liquid

Potential Risk Factors for TSPY

  • Limited track record as a new fund
  • Higher expense ratio at 0.68%
  • Concentration risk with most of TSPY held in SPY
  • General market risk
  • Income variability – yield targets are attractive but may fall during periods of low volatility

Key Considerations for TSPY Investment

To make an informed decision about the potential for an investment in the TSPY ETF an investor must carefully consider their own intended target. Are they wanting market returns at minimum, do they need income today, or are they looking for some mix of both. These are just a few of the possible questions we’ll have to ask prior to an investment into TSPY or any other income focused product. For me, I like receiving the dividends even if I accumulate a lesser total return. It helps me stay focused and provides the psychological benefit of seeing the income deposited to my account. Silly I know but it’s a valuable component for me.

Still, here are some items to consider before committing capital to TSPY.

  • Investment Goals – is there a need for TSPY within the portfolio?
  • Portfolio fit – does TSPY complement or detract from the portfolio’s design?
  • Cost analysis – is the higher expense ratio to high or could a similar return be achieved elsewhere for a lesser cost?
  • Tax consequences – every dividend, qualified or non-qualified has a tax implication.
  • Long-term or short-term – What is my time horizon?
  • Regular monitoring is always important with funds such as TSPY because their strategy may change at any time in an attempt to adapt to changing market conditions.

Final Thoughts

Well, I think I covered everything above but in summation, like other income focused funds, I think TSPY would depend on what you’re after. If you want a higher income and like the idea of generating that income daily then TSPY may fit the bill. Personally, I like the daily options approach because it doesn’t give SPY as much time to climb above the short call compared to monthly calls. However, on large up days TSPY would be at a disadvantage as they attempt to maintain their target income rate. In that instance, monthly calls would become more attractive since they could be sold further from the current market price.

In total, daily income is a preferred strategy for me. I like knowing that I’m not tied to a longer dated option and I can reset my short call regularly. Doing this means I may miss one large upside day but I won’t miss every day’s upside. Whereas monthly calls by comparison could potentially limit upside exposure until the short call is exercised and a new higher call is set.

Until the next post.

God bless,

Jeff

Tags:
Leave a Comment

Comments

No comments yet. Why don’t you start the discussion?

Leave a Reply