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 Overview
• Key Statistics
• TSPY Investment Strategy
• Fund Holdings
• Performance & Yield
• Tax Considerations & Dividends
• Potential Benefits
• Potential Risks
• Key Considerations for Investors

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

<p>The post TSPY ETF Explained: Balance Income & Performance first appeared on UQinvest.com.</p>

With that, I wanted to take a closer look at an ETF I’ve had a great experience with in the year I’ve owned it. I haven’t seen the growth potential I’d hoped but the higher income has more than sufficed while I wait for QQQ or JEPQ in this case, to continue making new highs.

If you’re interested to learn more directly from JPMorgan’s Website, have a look here for the prospectus, summary prospectus, and several other relevant fund metrics. If you want to see how JEPQ is behaving in my own portfolio, have a look at the Unqualified Portfolio here.

Post Agenda

• Overview
• Investment Strategy
• Expenses
• JEPQ ETF Pros & Cons
• JEPQ Investment Returns
• 3-Year Performance Data

JEPQ Overview

The JPMorgan Equity Premium Income ETF or JEPQ is an actively traded fund and invests in large-cap companies from the Nasdaq 100 index. JEPQ uses a covered call strategy to generate a higher level of income at almost 10% per year, making it very attractive for income seeking investors. Currently, the fund has approximately $21 billion in assets under management with an expense ratio at a reasonable 0.35% given the funds potential.

JEPQ Investment Strategy

JPMorgan uses a popular options strategy combining equity investments with an out of the money covered call. This approach accomplishes the goal of generating an additional income without completely ignoring capital appreciation. Short calls are entered above the current market price but at that point upside appreciation is forfeited in return for the income that is received.

I do prefer this strategy to other funds that chose to sell at the money calls. Those funds may return a higher premium but do so at the expense of any capital appreciation. I just don’t care for a fund that participates in all of the downside and none of the upside.

In any case, JEPQ uses a more conservative options approach and has performed quite well in my opinion. We’ll take a closer look in another section but in the few days of 2025, JEPQ is trading in lockstep with QQQM, the Nasdaq 100 ETF.

Expense Ratio

As mentioned previously, the JEPQ ETF has a respectable expense ratio of 0.35%. For comparison, the SPY ETF has an expense ratio of 0.09% so yes JEPQ is higher but not egregiously so. Making the expense ratio more than competitive for an actively traded fund. SPY maintains a lower expense ratio primarily because of it’s “hands-off” or “passive” approach.

There are no loading fees to speak of and like most ETF’s, no other hidden fees. Every cost is wrapped into that 0.35% expense ratio and at $35 for every $10k invested, it’s more than manageable. It’s likely, we couldn’t replicate JEPQ’s performance for any less in fees if we wanted to go about structuring a similar strategy.

JEPQ ETF Key Benefits

• Well above average dividend yield at approximately 9.7%
• Lower volatility compared to the Nasdaq-100 Index
• Diversified investment into Large-Cap Technology stocks

JEPQ ETF Key Detractors

• Capped upside due to the covered call strategy
• Higher concentration risk to Technology stocks
• Additional complexity from the options strategy

JEPQ ETF Investment Returns

Since inception JEPQ has been providing investors with a great return, including appreciation of about 12% in the past year. Additionally, as of today, JEPQ has captured about 75% of the Nasdaq-100’s upside while simultaneously generating a consistent stream of income. This combination of growth and income has attracted plenty of investors to JEPQ at this relatively early stage and will likely be a deciding factor for many other investors in the years to come.

3 Year Performance Results

Back Test Criteria:

• $5,000 Initial Investment
• $100 Monthly Contribution
• Start Date – 1/14/22

Assuming a $5,000 initial investment and $100 monthly contributions starting January 14^th, 2022 an investment into JEPQ would have become approximately $17,000 throughout the period. The total capital contribution across the 36 month period would be $8,600 for a total return of $8,400 or almost 100% in total return.

Doubling an investment in just a little under 3 years is no easy task. JEPQ has become a star performer within the options ETF space and should these metrics continue, will be well into the future also.

Final Thoughts

JPMorgan has found a winning formula with their JEPQ ETF. By combining the ability to capture upside JEPQ separates itself from other high yielding funds. Many of which not only fail to grow but actually have a decaying share price as a byproduct of their particular strategies. Not exactly a recipe for longer term success.

Still, as it is with any investment, there are good performers and not so good performers. In my opinion JEPQ falls into the better performers camp having virtually doubled an investment over the past 3 years.

At a reasonable expense ratio, approximately 75% of the Nasdaq’s growth potential, and about a 10% yield, JEPQ offers plenty for investors to like. Add to that any yield increases that may result from higher volatility in the years ahead and, I think, there are plenty of reasons to consider this high yielding ETF.

Let me know in the comments what you think of the JEPQ ETF or if another ETF has performed better. I know everyone would like to review.

Until the next post.

God bless,

Jeff

<p>The post JEPQ ETF: Capable Growth, Higher Income first appeared on UQinvest.com.</p>