Opinions
Mike Philbrick
FIRST ASSET TECH GIANTS COVERED CALL ETF
TXF-T
RISKY
Jul 30, 2018
$17.150
Stock price when the opinion was issued
E.T.F.'s
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COMMENT
Basket of 25 US tech stocks, equal weight, with a covered call. Yield is about 10%, but going forward it may be closer to 7%. Be aware that much of the yield is a ROC. It's not a straight dividend. He watches the ZWT ETF, market weighted, 65 holdings, more diversified, lower distribution, but it's outperformed TXF this year.
E.T.F.'s
DON'T BUY
The company does some covered calls. One concern is that gold or any commodity is risky, so he wants the full benefit of that risk in return. A covered call on a commodity limits the upside (though he really likes covered calls in general). TXF pays a 9% dividend yield--it looks wonderful, but below the surface could lie risk.
E.T.F.'s
PARTIAL SELL
A hedged ETF will not have any impact on US assets since the currency is hedged. If inflation is more persistent, then the Fed will have to be more reactionary. This will cause an unexpected upward movement in interest rates, which will lead to these assets to underperform. Good strategy to extract yield from a sector with low yield. Not the best time to start a new position. Would trim some exposure.
E.T.F.'s
DON'T BUY
You should not invest just for a high dividend. The tech sector in the late cycle where interest rates rise, will underperform. He is underweight technology. You want to see this pullback significantly before dipping in. The dividend is volatile and is driven by the premium from the underlying stock price.
E.T.F.'s
DON'T BUY
Depends on your risk tolerance. These are volatile stocks. If he's going to take on the risk of owning some very highly priced stocks, he wants the full value of the upside and not capped by covered calls. The premiums are very rich, but that's not what he wants for his clients.
In general, he likes tech ETFs because they've driven 30% of the gains in the market. And AI will be into everything -- even his dog's vet has adopted it.
E.T.F.'s
Most of what you receive from this ETF is capital gains. It is an interesting ETF- the largest 25 tech companies, equal weight with covered calls. Covered calls are better for stocks going sideways. He does not think this is a prudent investment for a retiree. Be careful here. The covered writes buffer on the downside a little.