ETF Battles: Watch Nasdaq QQQ Covered Call ETFs, it's QQQI vs. QDTE!
ETFs that use synthetic income derived from call options have exploded in popularity, and today's ETF battle is a head-to-head matchup between covered call ETFs from NEOS and Roundhill. Who wins the battle? Find out right after this.
Cordial welcome to all you're watching ETF battles. I'm Ronda Lee. If you're new to the channel, welcome aboard. We're in season six, so hit that subscribe button and join our community. If you've got an ETF battle suggestion, hit us up in the comment section below with your ETF ticker symbols. We can do double, triple, and quadruple headers. You can also send us your requests on our X feed at etfguide.
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Today's ETF bout was requested by a viewer named Brian Morrison, and it's between QQQI from NEOS and QDT from Roundhill. These are both high-income ETFs focused on the underlying index as NASDAQ, and so we're going to take a look at these income funds and compare them. Remember, they're using what's called synthetic income, which is from specialized option strategies. That's a lot different than, let's say, dividend income from a corporate payout from a company. Our judges are going to probably elaborate on that.
Judging today's contest is a duo extraordinaire. We've got Dave Kines with ETF portfolio management and Athan Feras with Bloomberg. Judges, welcome back. Great to see you. Ronnie, Athan, battle on. Our four battle categories are cost, exposure strategy, performance and yield combined, and then mystery is the category where our judges can pick a certain factor or thing that they think is crucial to today's contest. I've got the scorekeeping duties. At the end of the program, we will declare an overall winner. None of the battle outcomes we do on this program are ever predetermined or known in advance by myself or our judges.
The first category is cost. Let's start with Athan. Please get us started. You have QQQI, which is from NEOS, and you have QDT, which is from Roundhill. That one is 95 basis points. The one from NEOS is 68, so it's a pretty significant difference. We'll get into the yield that they pay out, and that's much different, but they've both been pretty successful in a very short amount of time. They're pretty new products. They both have over $600 million in them. They both trade quite a bit. Obviously, this is a really popular category, like you were alluding to, synthetic income. It's taken hold very, very quickly, but the difference in the expense ratios is meaningful enough that I would just give this to QQQI. It's 68 versus 95, so that's a pretty big difference. Notice they are more expensive than a typical, you know, kind of Vanguard type ETF, but I will give this one to the NEOS QQQI. That's a strong start.
Thank you, Athan. Dave, you're up next. How do you see it when it comes to cost? Ron, you know how much I love leverage ETFs, and I've been begging you for a leverage single stock ETF battle for quite a while. You give me covered calls. Well, you know I'm a team player, so let's do it. QQQI is almost 30 basis points lower cost than QDT, and in this space, that may be material, so I agree with Athan and give the cost win to QQQI.
You are correct, but the underlying index is the triple Q's, which refresh my memory. That's your area of expertise. You're a triple Q NASDAQ 100 proponent, so that's why I pulled you in on to this. Thank you very much for that analysis. That takes us next to the performance. I'm sorry, not performance, exposure strategy. I'm jumping ahead, so let's take a look at exposure. Dave, you're up. Give it to us for exposure.
These funds are both focused on growth through the NASDAQ 100 with extra income and somewhat lower risk profile than passive equity indexing. At ETFM, for this type of exposure, we typically employ the incoming growth investable benchmark portfolio, which is a balanced mix of stocks and bonds with a dash of the top cryptocurrencies. We also do not allocate to covered call strategies because our focus is on maximizing investor upside with risk control. Often, we prefer to use leading leveraged ETFs with an active position rotation process to both control risk and to allow for income. For exposure in these covered call battle funds, I call it a split decision.
Athan, you're up next. How do you see it when it comes to exposure between these two ETFs? They're both the same but different, and what I mean by that is they're obviously both tracking the cues, right? They're writing out-of-the-money call options on the cues, but it's with you're going to get a little bit more downside protection, and you're going to miss out on a little of the upside, right? That's sort of the cost because clients always ask, or they don't understand, well, yes, you'll get this yield from it. What's the cost of getting that yield? That is giving up some of the upside.
The main differences between these two is the NEOS product will do monthly option writing, and the Roundhill will do daily. Because of that, they're able to punch out a much higher yield, so just something to keep in mind that the scheduling is different. You could potentially give up more upside with the Roundhill product. I'm going to have to go with what David said, too. I think it's a split decision. I think you're getting the same exposure, just like what preference you want. Do you want a week? Also, Roundhill pays out weekly, too, so the income is paid out weekly versus monthly for NEOS, so it's just more of a matter of preference. It's too close to cost. I'll probably also do a split decision on the exposure strategy.
All right, well, that takes us next to the next category, which is performance and yield, and Athan, you're still up, so break it down for us. Let's start first with yield, right? I was mentioning because Roundhill does it on a uses daily options, they're able to punch a much higher yield, so they have a yield of about 30% annualized. QQQI uses monthly. They have about half of that, right? Only about 14% yield. This is also going back to the expense ratio. You do find that the ones that are able to generate a higher yield do charge more, so just something to think about. Yes, the Roundhill product was 95 basis points, but it pays a much higher yield.
Performance, they're both pretty new, so if since they launched, and just because the cues have been a little choppy, they've pretty much just matched the performance of the cues. If you wanted to get a long-term look how this strategy would have done, just look at JEPQ, which is a JP Morgan covered car product. It's been out there a little bit longer just to give you an idea of how this would perform over the long term. If you still believe the cues are going to go up and the market's going to go up, you're going to lag on the upside, so you have to keep that in mind with these types of strategies. Because this is going towards an income-oriented investor and someone who, you know, is going to be focused on that, Roundhill just punches so much yield from that product, and that's really attractive to somebody, so because of that yield kicker and they're doing it on a daily basis, I'll give the performance and the yield winner to QDT.
Dave, you're up next. How do you see it when it comes to performance and yield? On performance, these two funds are relatively new, as Athan mentions, so this data chart shows over the past four years JEPI, JEPQ, and XYLD, two older covered call funds, both materially underperformed the S&P 500. However, JEPI was successful in significantly reducing risk in the crash of 2022. So, for performance here, I call it a split decision, and note in this trailing four-year period, SPXL strongly outperformed TQQQ. As much as we do typically use TQQQ, which is three times NASDAQ 100 exposure, there are times when we prefer SPXL for three times S&P 500 instead.
Well, that takes us to the mystery battle category. This is where our judges can name a certain factor or thing that they think is crucial to today's contest. Dave, what is your mystery battle category, and which of these ETFs wins it? Well, my mystery category is always position size, and when it comes to covered call funds, my position size is zero. Now, given the asset flow, there is certain value and opportunity for some investors in covered call strategies. However, at ETFM, we prefer to reduce risk and to allow for income through active risk controls on leading leveraged ETFs, so I call the position size category for these battle funds a split decision.
Athan, you're up next. How do you see it when it comes to your mystery battle category? What is it, and which of these ETFs wins it? One of my favorite categories is taxes, the tax man, and investors have to be cognitive of price return versus total return, right? Essentially, if you look at both QQQI and QDT over the common inception date, they almost performed exactly the same. They're at about 20%, but QDT, most of that return came from income versus QQQI, which was balanced between price and income. Assuming you're not in an IRA, just something to keep in mind because it's all income. You're paying taxes on that versus some versus price return. You won't pay that until you sell it. You can't avoid that with income, so just keep in mind that from a performance perspective, QDT was down on performance.
