Investors with an insatiable appetite for YieldMax have yet another fund to consume.
Manager ZEGA Financial has released yet another iteration of its single-stock fixed-income exchange-traded fund (ETF). This time, it is a payment processor play (its second, after PayPal).
On Tuesday, October 10, YieldMax launched the YieldMax SQ Option Income Strategy ETF (“SQY”) on the New York Stock Exchange (NYSE).
SQY seeks to generate monthly income via a synthetic covered call strategy on the payments platform Block Inc. (“SQ”). ZEGA Financial will actively manage the ETF. Like the other YieldMax ETFs, SQY does not invest directly in SQ.
The ticker is a nod to Block Inc.’s former name (Square Inc.). The company was founded in 2009 by Twitter founder Jack Dorsey and Jim McKelvey. Block assists small- and mid-sized businesses set up credit card payments. It offers smartphone or tablet-based point-of-sale systems (POS) for added convenience.
SQY will cap its potential gains if SQ shares increase in value. It should be noted that its strategy is subject to all potential losses if SQ shares decrease in value. So, the income that SQY receives may not offset these possible losses.
Packed to the Rafters/ Full House
SQY is just the latest fund to pack YieldMax’s swelling house of funds. YieldMax ETFs have been coming in thick and fast in recent months, with issuer ZEGA’s assembly line ticking at a furious pace.
Since the summer, it has brought on other YieldMax funds, with synthetic covered call strategies for Disney, Microsoft, Exxon Mobil, Netflix, Amazon, and AMD as well as payments provider PayPal.
YieldMax’s leveraged, wrapped products bridge fixed-income and growth investing. They try to deliver steady monthly income along with capped gains from the price performance of SQ. Yet there are downside risks. ZEGA Financial (the YieldMax issuer) does not guarantee dividend payouts, reminding investors that distributions could vary significantly on a monthly basis. Investors may sustain serious losses if the target stock’s value declines sharply.
In 2021, Block’s price surged to all-time highs, holding well above the $200 mark for several months. 2023 has not been so kind. Block is down about 27% year-to-date, trading around $45. It currently has a market cap of just under $28 billion.
Block is often compared with Stripe, but while both are giant payment processors, Stripe focuses on online payments (subscription sites, e-commerce, etc.), while Block handles payments for brick-and-mortar vendors.
Although valued at $50 billion earlier this year, Stripe – founded by Irish brothers Patrick and John Collison – remains a privately held company. Speculation about its plans for a launch has continued for some time, but so far, it has remained on the sidelines amid a still-frosty IPO market. The company recently told employees it will make a decision regarding a public debut within the next year.
If and when Stripe does make it to market, we know which fund manager will be waiting to wrap it with/in a synthetic covered call ETF.
Like all the other YieldMax, SQY has a gross expense ratio of 0.99%.