ETF Battles: BTCI vs. MSTY - Covered Call Cryptocurrency Clash!

Forget dividends and dusty bond portfolios.

Investors are chasing yield in places that you wouldn't even expect.

From Tesla options to covered calls to alternative income ETFs on Bitcoin, we got a new gen of income ETFs that are flipping the script on passive income.

But is this surge sustainable or is it just another pitfall?

Well, today's ETF battle features an audience requested matchup between BTCI from NEOS Investments going up against MSTY from YieldMax.

So, who wins the battle?

Find out right after this.

This is ETF Battles and I'm Ronda Ley and it's a delight to have you back.

This is the place where we meet to analyze and judge ETFs versus each other.

So, send me your ETF matchup request in the comment section below.

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Besides leverage and inverse choices on broad market indexes, there's lots of choices for ETFs linked to industry sectors along with mag seven stocks and single stocks like Nvidia, Palunteer, and many others.

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So, today's matchup was requested by a viewer named Whippers Snapper 7. and uh he's uh this viewer originally requested a quadruple header, but we had to exclude two of the ETFs in the original request due to the fact that they were launched in June and really don't have much in the terms of real world performance or yield history for us to analyze just yet, but get back to us on that whippers snapper 7 uh for a future battle.

Judging today's contest, we've got a duo extraordinaire, John Davyy with the story of Portfolio Advisors and Aan Ferris with Bloomberg.

Guys, welcome back.

Great to see you again. >> Hey guys, nice to see you. >> Good to be here. >> So, our four battle categories are cost, exposure, strategy.

We've got performance and yield combined.

And then our mystery category where you, our judges, can pick a certain factor or thing that you think is crucial to today's contest.

Keep in mind that none of the battle outcomes on this program are ever predetermined or known in advance by myself or our judges.

I've got scorekeeping duties.

At the end of the show, we'll declare an overall winner.

And let's kick things off with the first category, cost.

Aan, please get us started.

Yeah.

Um, hi guys.

So, they're pretty close.

You have the uh Neos product that has um a headline expense ratio of 98 basis points, 99 basis points for the uh micro strategy option one.

They're really close, but they both have got they're both pretty good in size.

Like you have 5.6 billion in the in the Micro Strategy product, which is or now it's just strategy.

Sorry, it's not Micro Strategy anymore, but that's impressive for a single stock ETF. 500 million in the Neos one because just cuz we're so close on the headline, there's a little bit more liquidity.

The spread's a little bit tighter on the mic on the strategy one just because it's bigger.

It trades a little bit more.

So on a total cost um taking yield aside, it's a little bit of an edge for the for MSDY.

So I'll give that one on a total cost owner total cost of ownership to to MSDY. >> Strong start.

Thank you, Athan.

John, you're up next.

How do you see it? >> Uh nothing more to add really.

I mean, one bit cheaper in management fee, but you know, these are very very different products.

So we'll get into that in a second, but I I wouldn't like make a decision based on two very different products based on like management fee.

So >> that takes us next to exposure strategy.

And this is where we get into the details, the nitty-gritty.

John, you're still up, so give us your take. >> Yeah, so you know, these are, you know, option override ETFs.

You know, you you're along the line delta.

You sell a call option.

Um, you know, one's on actual spot bitcoin, one's on a company that's actually a software company that, you know, owns a lot of Bitcoin on their balance sheet.

So I mean Bitcoin is you know extremely volatile asset.

Now you're talking about and that's like an asset class right Bitcoin.

Now you're talking about a single stock which single stocks have a lot of idiosyncratic risk and on top of that you know you're sort of taking a software company cloud software you know service and whatever they do that just happens to own a ton of Bitcoin on their you know on their treasury balance sheet.

So you know >> borrowed holdings no less. >> Yeah.

I mean this is so you know very different.

So you know generally speaking from my standpoint as a portfolio manager you know if you were going to own you know an asset class you know you kind of size it appropriately in your portfolio and you just you know you say okay this is going to be your you know your alpha.

So I don't love this the fact that you're going to sell call options because I think you kind of clip your upside but you know these are two different you know beasts but they're all sort of you know selling the upside.

So, do you favor one over the other or do you dislike them both equally? >> I think from like a V standpoint, I would lean on like Bitcoin.

Like we, you know, we own Bitcoin, spot Bitcoin ETFs in our core SMA models.

And then we run a real asset strategy both in an SMA and a and an ETF.

And in that, you know, we own spot Bitcoin.

So, we don't own, you know, like an option over an ETF.

So, I would lean more on the BTCI from Neos if I were going to do call overriding. >> Gotcha.

Thank you, John.

Aan, you're up next.

How do you see it when it comes to exposure strategy? >> John did a those all great points and this is very for a very specific type of person.

And, you know, we were mentioning the fees, this 98 versus 9 basis points.

That's really expensive for an ETF, but the industry sort of flipped a little bit.

And before it was this big focus on fees.

Now, it's this big focus on yield.

So like the higher yield you have, this is where flows are going.

And you can just see by the discrepancy of the flows, 5.6 billion in the Micro Strategy One versus Bitcoin.

But to John's point, they're very different in that with the Neos product, you're still getting underlying Bitcoin exposure and you're selling that to the calls.

So you're you're getting some upside.

With the other one, your upside is really cap.

So it depends what's important to you.

And I think a lot of times they'll see this yield and and people just want to go to it.

But you have to look at it on a total return basis um which we talk about performance later.

So they're they're a little bit structured differently.

Um I'm lean the reason I would lean towards BTCI because you get the upside exposure along with the income and um you're not idiosyncratic like John was saying on that one stock and good luck trying to figure out like correlations like you have micro strategy that's tied to Bitcoin but they're holding Bitcoin.

It's just like I think a lot of times it's really hard to figure out how this will behave and people see this siren song of yield.

So just be really wary about things that have really really high yields how you're getting that income.

But I think if I had to pick between the two, obviously understanding the risks uh with these and what you're giving up, um I would lean towards BTCI.

I like this a little bit broader.

I like that it actually holds it holds a Van ETF, the Bitcoin one under it.

So you're still getting some Bitcoin exposure. like you'll still lag if the market goes up, but you're not lagging by um a significant amount.

So again, very different, but I would just because of the more broad nature of it, I I would pick the NEO's BTCI product. >> That takes us next to performance and yield.

And Aan, you're still up.

So break it down for us.

How do these two ETFs compare? >> Yeah, so the yield is very attractive. uh you might get some different figures, but just using the Bloomberg terminal and look at the most recent payout, you're getting a yield of about 80% on the strategy one and about 27 on on BTCI.

And I think as you're always going through these products, just keep in mind like this like there's no such thing as free yield, right?

And someone would look at it and you know sometimes this number hits 100% and someone will say, "Oh my god, I'm going to double my money by just it doesn't really work like that, right?" And sort of where the yield comes from.

Again, it's from selling all these these different options, but there's something >> that yield, by the way, just to explain that to our audience.

Is that uh an SEC yield, a 30-day or what what is that based upon? >> Yeah, that was just based on the most recent payment by the um the current price.

So, if you kind of smooth it out, it's probably a little bit closer to 100 for the Micro Strategy product just because it's come it's been down a little bit.

It's a little bit closer for 30% for the um uh for the Neos product.

So they're they're really hefty yields, right?

So they're they're really and you're getting but if you would actually look at the price performance versus total performance of the Micro Strategy One, you'd actually be down on a price basis, but you're up.

So which means that all that gain came from income.

You're paying taxes on that unless it's an IRA.

So I don't want to make any assumption, but just know that that's a very tax inefficient way to get yield.

Um now there's some things you should be aware of of like return of capital versus just regular dividend distribution.

So NEOS will pay some most of it on something called return of capital which essentially um you're not taxed on that like a normal dividend.

So you deal with the tax later.

Some of the bit the micro strategy one is return of capital but not all of it.

So from a tax efficiency standpoint BTCI is is better.

Um and a lot of people might compare performance between the two.

Uh I think the fair ways to look at MSTY versus Micro Strategy and BTCI versus Bitcoin, not necessarily compare the two.

You would have underperformed just holding Micro Strategy if you held MSTY over the year by 60%.

That's massive.

So this is why I just mentioned total return is really important.

Don't get hooked up on the income.

Like if you care about total return, you would have been better off just holding the stock.

Um BTCI because it still holds Bitcoin, it tracks a little bit better to Bitcoin.

So, I know this is like some very long- winded answer about like you have to care about all these things when you're looking at it.

I would lean towards BTCI.

I think for again some of the problems the yield is good, but I would again be really wary of products that have really really high yield.

You have to know about where that's coming from.

A lot of times it's it's kind of eroding itself to just pay you something back in yield.

Just be a little bit wary wary of something that has a very very high yield.

Um, and I like that it has the upside.

It's lagged Bitcoin by a smaller amount than a Micro Strategy has lagged its underlying stock get very different.

Don't just get, you know, taken by the yield.

Overall, I I like BTCI for just if you want this type of income, high income strategy.

I think that one is just a little bit better.

It's a little bit steadier the payout rates and it's a little bit more tax efficient. >> Gotcha.

And again for our audience, headline headline uh yields can be deceptive.

So don't be focused exclusively on that.

Although many of you probably won't even listen to this, but regardless, I'm going to continue to pound the p pound the table along with our judges.

John, you're up next.

How do you see it in terms of performance and yield? >> Well, let me share my screen.

Um cuz I think uh this you know I'm more of a picture goes a thousand words. >> You always do this John and I love it. >> You always surprise us with a screen share an unexpected screen share. >> Well th I think this is the point of like you know I if you know most people sort of have this view right that you know Bitcoin and and things tied to Bitcoin are going to go up.

So this is sort of like um you know the the the issue when you sell calls and you sell upside on assets that are highly appreciating.

I mean if you look at the you know the return difference uh you know over the last you know year and a half you know you could see that the the when you sell the uh call options you know it's something like 160% of the upside you're giving up just to get that chunky yield um to Ean's point.

So, uh, I think, you know, sort of buyer beware.

I do suspect that a lot of people just buying it for the income, not really understanding, you know, what it actually is that you're selling the upside.

So, you know, I I think it's like too much fun to just, you know, be long the the stock.

So I'm not a big fan of option over for that reason and especially for an asset class that you know most people are thinking has a lot of upside and when sized appropriately in your portfolio at you know one 2% you know which can provide the the alpha for you.

So that's my sort of overall assessment.

So agree with a lot of Ethan said you know nothing really more to add. >> So I would take it a split decision >> I think.

So and and I wouldn't compare like one versus the other like Ethan said.

I would prepare, you know, I would sort of compare like your stock versus like the option override within the same, you know, category.

So, >> this kind of reminds me of like those payday loans where they'll give you your money, they'll advance you your money. >> That's that's exactly right.

Yeah, that's exactly what it what you can compare it to.

So, >> yeah.

So, you're giving up the actual, like you said, that that perhaps bigger potential upside in exchange for give me my money right now, instant gratification, which is probably 99% of society. >> Yeah.

You you sell call options when you think you're in a rangebound market or it's going to go down, right?

I mean, everyone thinks Bitcoin is going to keep going up.

So, the point is like just be mindful that you're selling into a highly appreciated, you know, sort of bull market. >> All right, that takes us next to our mystery battle category.

This is where our judges can give us any factor or thing that they feel is crucial to today's contest.

John, you're up.

What is your mystery battle category and which of these um two ETFs stands out? >> So, uh do do you mind if Aan takes this one?

Uh >> yeah, that's fine.

We'll we'll switch to Aan.

Ethan, what's your mystery battle category and which of these two ETFs wins it?

And uh if you'd like, we'll come back to you, John. >> Yeah, sure.

I mean, it's not really a big mystery, but I think it's a big important one and that's taxes, right? in that we sort of alluded to it.

Get to know the difference between return of capital and just regular income payments.

It's taxed differently.

Return of capital is deferred.

You're still going to pay the taxes later, but if it's a strategy that you you think about holding on to that can accumulate that could add to to to differences.

If it isn't a taxable account, if this is in an IRA or something, this becomes a little bit less relevant.

But um it it's a big driver of it, right?

It's these aren't the most efficient ways to get um return.

So, if you're gonna do it, try to find the most efficient way.

Um, which would probably focus on ones that have return of capital.

Um, and I don't want to make a plug for them, but they have a really great Neos has a really great um video about how all the differences and how this works.

So, this applies to any type of income strategy.

So, I would definitely recommend people check that out.

I think that they do a really good job of of breaking that down.

And for that, I think it goes back to the Neos products.

I think there's a slight tax edge there.

If if you're going to have to use one of these, um, just go to the one that's a little bit more tax efficient. >> Very good.

And and of course too, that could change like anything, right?

The the amount or the return of capital amount or percentage will vary.

Correct. >> Correct.

And MSTY varies a little bit, but like you said, it's not exactly guaranteed.

Um, you know, there's no guarantee that this would, you know, a lot of things factor into it.

The volatility, how big the fund is, things like that.

So, um, def, you know, definitely something to keep in mind.

It could vary.

So, it could make it a little bit of a nightmare time.

Sometimes comes tax time. >> Oh, man.

You're going to give your CPAs a lot of work.

They're going to love this episode.

And let me just say that both of these ETFs we're talking about today are both ROC or return of capital heavy products. >> They are.

So, just keep that in mind. >> Oh, no.

I was the um NEOS is pretty much all ROC, at least right now.

The the other one's about an 8020 split.

Again, that can change.

Um, again, just something to keep in mind.

Um, it's a little bit of an edge to to the Neos lineup.

This is how they've sort of structured some of their their their products to be just more tax efficient ways for income.

But I it still brings you back to the same problem about income and total return and where is it coming from?

Um, and you know, lagging your benchmark.

So, it that doesn't change it.

It's just this is a little bit of a of a better way. >> Can you refer me to a good CPA, Aan?

I think I need one after listening to >> with these.

You should be bullish CPAs because they're probably like they love it. >> Well, that that that was going to be my bad category is like, okay, find the optimal tax accountant that's actually going to like do the work for you because to me at the end of the day, like this is really like a tax trade, right?

Like how do you want your money and do you want it now versus later?

I mean I I think you know when it comes to something so volatile that in that involves you know derivatives you know looking at the perspectus having like a professional accountant do the work for you to try and help you navigate but you know these are two different beasts right so it's kind of comparing apples with oranges to some degree but uh I don't really have like a mystery category um but I just think like a lot of what Aidan said makes sense and you know if you're a viewer out there and you hold this in a taxable account you Make sure you talk to your accountant.

You know, that's really the kind of, you know, secret, I would say, the mystery category secret by everywhere. >> Very good.

Thank you, John.

And we're going to now shift to the part of the program where our judges can give us their overall battle winner.

So, how will this go down?

John, give it to us. >> I mean, I'm sort of partial of Neos.

Um, you know, I've I've known those guys for for a while.

Um, they're actually a big sponsor for my Macro Summit uh conference in New York.

Um, if any of your viewers, Ron, are in New York City and want to uh come to our conference, you know, you'll actually hear Neos's, you know, co-founder on stage talking about, you know, this strategy and his whole lineup, his tax efficiency, how he uncovered this sort of edge that Ethan has been talking about.

Um, you know, those guys have raised, you know, five, six billion or whatever the number is in a very, very short period of time.

So, you know, viewers can come to our website, storyadvisors.com, and look at a macro summit for the for the the speakers.

And um yeah, I I I'm a big fan of how they've structured their derivative products.

And so, I would give them the category winner. >> Aan, your final chance to weigh in with your overall winner. >> Yeah.

You know, this is I feel like a lot of this is psychological, right?

Like maybe there's a fine line between, you know, philosopher and ETF analyst.

I don't know.

But with the micro strategy, >> you're Greek.

You're a philosopher automatically roots >> automatically.

You can't it's in your DNA.

You can't escape it. >> But John was spot on about it's just how you want the return, right?

Do you wanted income or do you want in total return?

And that chart he showed was great that if you had held MSTY against strategy since its inception, you would have lagged by 150% by holding the income one.

Like is that worth like do you care about total return? like you just want to make the most money possible at the end or do you want that sort of steady income but you're giving up right you're giving up all that upside so you have to you have to factor that in like what is more important to you I want a steady number regardless of what the stock does and the thing is when you buy something like MSTY you are inherently bearish on the stock so to John's point if you think this stuff's going to go up does this make a lot of sense but money talks right this is why this has $5.6 six billion dollars in it because people see the the yield, they get attracted to it without maybe understanding fully how it works or where it's coming from.

But with all that said, um again, if you want to use something like this, I I like the BTCI setup.

I like that it has the underlying, you get some of the upside.

You'll still lag Bitcoin if it goes up, but the income's a little bit steadier.

It's a good trade-off between total return and income when it feels like with MSDY, it's almost just all income. um and you're not getting that participation in total return.

So, it's close.

You know, this is why I know this was kind of a long episode, but these are really complex products.

But I would overall between the two, I think NEOS has a nice setup uh with BTCI.

So, I would lean towards that one.

All right.

Well, our judges have spoken and according to my final battle scorecard, BTCI is today's winner.

And uh our judges raised some great points.

Of course, you know, the biggest point, I guess the the takeaway that really jumped at me is, do you really want to be selling away your potential upside in either of these assets?

I mean, they've been both such great performers, and that's kind of what you're doing with this covered call strategy on Bitcoin as well as strategy.

Um the other point that was raised is return of capital which is something that those of you owning this either these funds or any funds similar to this in a taxable account.

You need to pay attention to this.

ROC is not taxes income when received.

Instead, it reduces your cost basis in the fund.

And then eventually when you go to sell that ETF, the capital gains calculated against the reduced cost basis, which potentially increases your taxable gain down the road.

So, just keep that in mind.

Those of you that again own these in a taxable account.

And uh again, I think our our judges raised some great points.

One thing I want to throw out there as a another alternative is is why not just own the underlying asset in this case strategy or Bitcoin and sell covered calls yourself.

That's another potential strategy that uh that you know those of you that are sophisticated enough to do it uh may want to consider that as an alternative strategy.

Anyway, I think our judges did a great job.

John and Nathan, thank you so much for your great analysis. >> Thank you. >> Thanks, guys.

This was great.

Well, that does it for today's episode.

Hit us up in the comments section below.

Let us know how you enjoyed the program.

Also, what ETF battles would you like to see on our next episode?

Again, hit us up in the comment section below.

I'm Ronda Leg with ETF Battles.

Thanks for watching.