Derivatives-enhanced exchange-traded funds have become a hit with retail investors. There’s been more than 160 such launches so far this year, with monikers such as “laddered buffer” and “covered call,” and they’ve attracted $50 billion and counting. While many of the products were designed to protect from downturns, some include options that can generate cash, which comes back to investors in the form of dividends. (Did someone say “yields”?)
On this episode of Trillions, Eric Balchunas and Joel Weber speak with Denitsa Tsekova and Vildana Hajric, Bloomberg cross-asset reporters who wrote a recent feature story about this new retail boom. The group is also joined by Todd Akin, a retail trader behind the Unconventional Wealth Ideas YouTube channel and one of the characters in their story. They discuss why these ETFs have become so popular, how they work—and what the risks are.
Bok No Trillions. I'm Joel Webber and.
I'm Eric Balchunis.
There is this headline that jumped out at me the moment I saw it. It was a big take from our colleagues Danizza Takova and Veldonajdrik. It describes something called a quick buck ETF and that immediately made me go, we got to talk to them and a character in the story, but you know, set the table for us. What is a quick buck ETF? According to Eric Baltunis, well.
Look, over the years, there's been a sort of movement to launch kind of unusual products. So try to get very creative for the ETF industry. Why the core of the portfolio? A lot of people go to like cheap index funds and you can't really compete there. What are you gonna do? Launch like a two basis point SMP five hundred, hang Guard and Blackrock own the core. So what a lot of issuers are doing is trying to innovate their way to something different and new. Some are innovating on the buffer side to sort of ease worry for older investors, and some are innovating to try to appeal to younger investors and retail investors who may favor income over total returns or in some cases a lot of leverage. We call it packaged adrenaline. So on that front, we have this, you know, sort of phrase we call hot sauce, and we have there's like six different flavors of hot sauce, and one of them are these I call them yield boost that's the brand name of one of them. But the yield Boosters, this one firm went from like no money at the beginning of the year to like four billion, and every product has inflows and they just write call options barely out of the money, so you give up almost all your upside, but you get a giant fat yield. So some of them yield over one hundred percent. So it's just another example of how the ETF industry is a big tent serving many different people, and this is one sort of evolution in what I call the hot sauce bucket.
We're going to be speaking with Denisa and Veldona, our cross asset reporters with Bloomberg News, as well as one of our sources, Todd Can. You can find him on YouTube at Unconventional Wealth Ideas, this time on trillions quick buck ETFs. Deniza Veldonna Todd, Welcome to Trillions.
Thanks for having.
Me, Thanks for having me, thanks for having us.
Okay, Denise, I want to start with you. How did you spot what became this story?
Well, we saw we look at Reddit, and we look at one of the firms, field Max, which Eric mentioned earlier, and he'd already had ten thousands readitors tweeting about it every day, talking about it every day. And then we looked at the inflows and the growth was incredible. Just to give you an example, their first CDs was just two years ago and this year they launched nearly twenty products anything you can imagine. They have single stock products, they have inverse in those talk products that generate income, and then we realized that there is a much broader universe there. First, they charge us higher than average fees. We often see fees in the range of one percent in those products. So we saw a lot of new issues being part of that movement. We looked at the data and actually at the broader universe of the rialties and enhanced product We saw over one hundred and sixty launches, which is a record high. We looked at the assets under management and it's just the growth is so rapid. It reached three hundred billion, and just five years ago it was like fifty billion. So the more you looked into the space, the more you found the social media marketing, the long YouTube videos, like a whole universe of people that engage into this community daily that call it a yield community that you know, there are hundreds of products they talk about and compare and discuss. So it's really something that's been growing by the day. We run the data at the beginning of the story, and we pretty much had to update it every day because there were so many launches coming. Some of them had like twenty five products in them. So it's just like insane amount of products that are coming to the market at a very rapid base.
Okay, well, Dona tell us more about what the products are and what an investor might hope to accomplish with them.
So, as the NITSA mentioned, there's more than one hundred and sixty new ones just so far this year, which is a record high for the number of new We call them in the story derivatives enhanced exchange traded funds. You can divide them, as Eric does, into a number of different categories. We focused on two main categories in the story. One is the ones that have like the options overlays that then have these hefty yields, these hefty payouts, and another one is the single stock version, so those are levered or inverse funds that focus on just one company. One of the most popular ones is based on Navidia No Surprise. This year, and we mentioned in the story its assets grew from like two hundred million at the start of the year to five billion dollars currently, So just a tremendous amount of money is going towards anything that can sort of catch people's attention these days. Obviously, then Navidio one is actually a really good example because Navidia has the stock itself has been doing so well, and so then what people do is turn towards some of these ETFs that can amp up these returns and just juice things up even further and make things more exciting.
And a lot of the launches are because you've got to cover all these stocks, so there's going to be like dozens and dozens of these over the years. I think Granted Shares has a filing to do this sort of yield boost thing. I think their firm is called yield Boost yield Boost, Yes, and they're going to do like three x q's yield boosts. So they're gonna do yield boost thing on something already really boosted. And I also noticed something funny about this. In Canada, there's an issue called there's an issue called Yield Maximizer, and their product line was Yield in all caps, but then Maximizer was in capital M and then lowercase, and they had an official name change for all their funds. And normally when you see that the name changes like dramatically or substantially. They just wanted to capitalize maximizer, so they and that's what I got a feeling that there's this like sort of race to package and push the envelope. I think of that top gun meme need for speed. You know, there is just a market for volatility, big numbers, and it's a you know, largely retail traders who are looking for this.
Okay, speaking of retail trader, so I'm going to bring Todd Akenn here. Todd, you are a retail trader and you have a growing YouTube channel. Talk to us about how you got into this specific type of ETF.
Yeah.
Well, thanks for having me everyone once again. And well, when I started Unconventional wealth Ideas, I was investing in the more traditional kinds of ETFs, and then subscribers would bring yield max and these other ideas to me, and then I realized that not only is it a way to get more attention of my videos, but I thought, well, maybe there's a way to actually make this investment viable and work for everyone. And so it doesn't really work for others because they don't really play them right. But if you use them properly and you blend them with other ETFs that give you the growth so you don't have as much nabdicate, then you can kind of get an overall blend of ETFs that help you outperform the market.
Talk to us about the specific products that you've used and what kind of experience you've had.
Yeah, well, the first ETFs that came out were Tesla, and you know the more popular stocks that everyone trades, Tesla and Video. So we had Tesley and vide and Tesla was struggling with its stock price. So tes Lee was not liked by many people in the community. They kept saying, the nab erosion is so bad. And how are you ever going to get back to even on this, you know, with this investment. But I'm always from the camp that if you hold your dividends long enough, you'll eventually cash flow. But the key with Tesli is that you can't live out of it because if you're trying to live out of Tesli and live free from your nine to five with things like Tesli, well, that obviously has too much volatility. It drops, it can be a widow maker in your account by itself. And so you know, you don't want to have too much stock exposure anyway with any one stock. You want to stay with the indexes. So Tesla just had bad luck, you know, and share prices down. So Tesley was was not a favorite for others. But if you hold it long enough, you'll come out on top, you know, if you hold it long enough. And so that's my belief is well, cash flow eventually, but in the meantime, in the meantime, how can you still get performance and not only outperform the markets, but withdraw freely out of your account without it cannibalizing your account. So we combine it with other yield max ETFs that actually grow, you know, some other yield Max stocks have been doing doing well. In VIDI was doing well. It was moving upward left right on its chart, so even though it was it had a huge dividend, you're still getting some growth. So people were really happy with NVIDI, not happy with Tesli, and I just started, you know, diversifying my portfolio out with the you know, Amazon's apples of the world through yield Max, and then they came out with their fund of funds, which helped give a little bit more diversification and stability with volatility, but still that it wasn't quite enough to live out of your account with. You have to combine it with some of these other funds that have come, you know, out to the market. Now. Like you know, y'all mentioned yield Boost, there's also defiance and rec shares and stuff like that, which all help balance out your portfolio a little bit better.
And I think something that Total also mentioned there is such a wide variety of products. And we talked a lot about the smaller firms that have been around for just a few years. But for example, one of the biggest products is coming from JP Morgan Acid Management, and during twenty twenty two, that product actually worked quite well. There's obviously a massive sell of and due to the covered code nature, they manage to outperform the SMP and Acid jumped to seventeen billion. I think they kind of tripled in twenty twenty two, which you know was a year when people were staying away, you know, staying in cash, being careful and JEPI got that popularity. So we have those big players actually running some of the biggest products now. Is thirty six billion obviously really really big TTF, A lot of options, people are writing about it whatever it's rebouncing, so it has its own power and importance in the market. Goldman is also having similar products. A lot of the big issuers are working on them, whether it's Buffer, whether it's covered CO. They're less likely to engage with retail, even though we've seen some of the portfolio managers like Hamilton Reiner, you know, I've seen a few videos of him on YouTube engaging with some of them. But it's really those mainstream products like eield Max, like Tidal, they're really encouraging that interaction with retail traders. And something they're saying is a lot of maybe the big names like JP Morgan and you know, big financial institutions are maybe underestimating retail traders. You are not going directly to them, so they find this is a way to market and reach a new audience. And indeed they're seeing big impact from it. After each video they appear, they're saying, oh, we're seeing more inflows after we go on YouTube. So it tells you a lot about how the ETF industry is changing.
Jeffy, which is the JP Morgan equity premium income, I would call that more conservative. That's writing call options way out of the money, right, so you get some upside, you get a little income like eight nine percent. As you said, those I think are really appealing to older investors, but some younger One guy on our team we call him Jeffy. Jackie loves that ETF and I likes JEFFQ. But I think what the yield Max and yield Boost people did to say, oh, that's an interesting idea, but why don't we write calls right here? Or why don't we do a straddle? And this is how the ETF industry progresses. Like the first smart beta ETF was very general. Let's wait by price to earnings and we're screened by that, and then all of a sudden, you get ones that have, like, you know, twenty five different criteria. Now, so when it comes to these ETFs, I want to ask Todd a question about this. If you buy Tesla Tesla tsly, that's the one that writes call options just out of it, are you making a call that Tesla won't go up because you are giving up a lot of your I mean almost all your upside so you do get this dividend, so I guess you have to believe Tesla's not going to go on some big run. And then the second thing is dividends are taxes ordinary income. I was having a conversation with someone says, actually might be more tax efficient to take a stock you've held for a year and just sell small increments of it and almost pretend that's your dividend to be tax less. What do you think about both those?
Todd?
Yeah, Well, so they have vehicles that they combine, you know, you can combine with the test lead to get your upside, like a t SLL. I don't know if that's granted shares, but y'all were mentioning yield boost before, and so there are vehicles that you can use to get your upside. I mean me myself. I will buy a little bit of Tesla stock or sell put options on Tesla to get more upside appreciation and lower my risk a little bit there, and then I'll buy test Lead just for the income. And obviously my big thing at my channel is I stick with the index. Is where Tesla is a large part of let's say the nasadack, it's a pretty good chunk of it. So I don't mind putting the most the bulk of my money in things like Cornerstone, which is you know, like JEPI is one of my one of my favorites. That's a that's a crowd favorite. It's more conservative, but Cornerstone was one of the first ever you know, they've been around since the eighties. And that's where I get a lot of my perform hormans. That's index. So I don't have to reach reach for a Tesla or any stock specific gains I can. I can put it in something like a Cornerstone CRFCLM, and then that gives me not only the index exposure that I need, but it's it's a very unique, a very unique fund. It has a twenty one percent dividend at the NAV and it drips that dividend, and it drips the twenty one percent divinitent down at NAV for free money every month. As I always say, so it's you know, if there's like an eighteen percent premium right now with Cornerstone shares to its net asset value, So when you drip that twenty one percent dividend, you're also getting that premium gain every month, which is really, you know, really interesting, and I don't know why more people don't discuss Cornerstone. It's four star rated on morning Star five stars sometimes, and so I instead of reaching for a tesla, I go with the indexes and I go with things that can help me get performance. Cornerstone moves. It has twenty percent premiums on average, and it has a twenty percent dividen and it drips it down at the NAV. So I kind of get my oun performance that way, and then I play it around It's Wright's offerings to really level up my account. But then I have Cornerstone and all these other funds that I mentioned, Rex Funds and other funds like that. But as far as the taxes go, Cornerstone is also a return of capital. So many of these funds might be a return of capital, but Cornerstone, if you don't sell those shares, you don't have to pay taxes. So that's also how I get around the taxes with you know, return of capital.
I want to jump in and say, just to be super clear, like a lot of people will consider these investments really really risky. And Eric, you mentioned that they can trail. A lot of them trail they're underlying stock or they're underlying index, So you know, you'll have like the Tesla will just be underperforming by that much more versus Tesla. Even during a year when Tesla is down a lot, it'll be down even more. The same goes for you know, the coinbase one we mentioned in the story, and a lot of other ones for retail investors. For a lot of retail investors, that might not matter. Maybe they're more interested in getting that dividend income and less interested in maybe it's just not as big of a concern that something is underperforming. They want the dividend income. But I just wanted to caveat that they really are considered a lot of them are considered risky by you know, the investment community, people who watch this space.
Yeah, no, doubt. I mean this is we have our traffic light system. These would be yellow lights. They're not quite red because there's no leverage involved. They're not rolling futures, but you are. You got to really read the fine print here and know what you're doing. I think something like a two x tesla, though that is red light because you could lose money quicker. These are a writing call. It's just it's different. Once you add leverage into the mix, then everything could go twice as fast up or down. So I think that's where these are moderately risky. But they're again I think Todd, you seem like you have a plan for this. You like this sort of mixing and the concoction of different things, and this is what you like to do every day. So I think this is the kind of template for like the kind of retail trader because remember Joel we had, Remember we had that guy on that nineteen year old who'd love to trade sqqq and tqqq but he monitored all day.
It seems so long ago and quaint it does well.
Honestly, that's a lot of volatility, though that guy was that's a whole other level. I think this is actually tamer. But at some point, I think, Todd, let me ask you this, like, you have fun trading, you do this stuff like at some point you know, either you do really well and you stick to it, or maybe you're like, you know, actually, I'll just buy Tesla stock or the cues and just not mess with this anymore. I do think sometimes trade do come to that, But on the flip, that's not as fun. And this is part of what we call roe returnal entertainment because a lot of people have a Core four one K. They can't touch it. You got away thirty years for it to compound. It's like watching paint dry. Actually it's watched like watching a tree grow. You would go mental looking at it every day. So they like to have fun with some stuff on the side. Is that this for you or is this like your whole nest egg? I guess. And how do you feel about that idea of do you think you'll someday come out the other end and be like, you know what, I'll just buy the stock and wait thirty years.
Yeah, I appreciate that question, Eric. You know, for me it is it is fun to not have fomo because when you're in the indexes You'll see other stocks kind of jump up and you'll say, oh, man, I wish I was in that stock. So what yield Max and some of these funds do for me is they allow me to not have fomo. I invest a very small amount, and these kinds of vehicles like yield Max. I always say, you know, if I have one hundred thousand dollars position in this index over here, well then yield Max will be like one or two thousand dollars of my dollars towards the bottom of my portfolio. They just kind of give a little bit of extra growth for me. The whole name of the game is qualifying income. And when you mentioned your trader that did SQQQ and t QQ, I strangle those often. But my thing was the banks didn't let me get my house with those gains. They were two up and down. I needed dividends. So I go with yield Max and all these other dividend funds to give me the qualifying income I need to get loans and to live free. And if I hold them long enough again, they'll cash flow. And even though they're down at the moment, they will eventually cash flow eventually, And you know, I keep them so small to where they don't even affect my performance. They just kind of give me the fomo that i'm you know that I can, I can take care of their and they give me the qualifying income I need to live free from a nine to five.
That is interesting, guy, It's a great anecdote touch.
So I'm so curious about that, toddic So just in general, talk to us about how you approach a portfolio.
Yeah, I mean every day I say it in my videos to stay with the indexes. And obviously on my about a million dollars invested in my account, we're up thirty two percent for the year. Most of that is because I anchor my portfolio to Cornerstone, and then I anchor it next to Defiance and then round Hill because Roundhill gives you some of the gains that move up upward left right and you get the dividends. But Cornerstone I always tout that one because it has the lowest maintenance, which is another term. I don't know if y'all want to get into that on this podcast, but in order to withdraw out of your account, you need to have low maintenance names, and Cornerstone is such high quality that it's low maintenance, whereas a lot of yield Mac's names are low quality, so they have high maintenance, so they suck up all of your equity right off the bat. So I tried to stay with low maintenance names that are indexed near the top of my portfolio. Those give me the compounding that I need because it's easier to make ten if you have a million invested, it's easier to make one hundred thousand on ten percent on a ten percent gain then it is to invest one hundred thousand and expect a double off of one hundred thousand. So I'll let compounding do a lot of my work for me. It takes care of my taxes because the return of capital, it takes care of my risk. They minimize my volatility. And then I just keep Yieldmac small for the fun no fomo and to just give me a little bit of extra qualifying income that then pays down my margin as well, and then I'm getting extra growth obviously by using the margin that we use in my channel.
Yeah, I think it's an interesting point that we discovered during our reporting that a lot of those traders are using those CTFs as part of their personal finances. Most people are taking loans. You know, some of those things are obviously quite risky, but I think a lot of it goes back to the fire movement, people generating passive income. So that's definitely a big force we're seeing on these forums and people very excited. But then this goes back to the bigger picture of like why this is happening now, And in terms of regulation, there were a lot of changes. There was the ETF through in twenty nineteen, the derivatives through in twenty twenty, so before that we really didn't have access to those products. We also saw the single stock ETFs, which have impact both on the cover code. We saw the biggest eels thanks to the single stock ETFs, and we saw the biggest leverage and biggest volatility thanks to those single stocktf So, you know, kind of wrapping up around here about the fact that what we've seen is something new, something that wasn't available to retail before. Some people are conscious about that. We even spoke to the SEC Advocate and they say they're worried about the growing complex city at a time where retail traders are so active, they're very interested in the space. The space is growing so fast. So perhaps one important point to think about it is like those products are often used. You know, they have big impact on people's lives if they're taken as a loan. And also this is something kind of new in terms of access for retail traders.
Movie ratings, Joel, that solves all this.
Do you like, oh, these are lights? Yeah?
I know. I was not to do it because of copyright, but movie ratings are perfect. It's like, oh, these yield max is, they're PG thirteen. Okay, why well x y Z or TSL two x TESLA that's our and then there are a few beyond our. We won't go into those. There's a lot of How about this leveraged VIX futures rollers, that's the US.
That's a roller coaster.
Two x micro strategy.
Too, yeah, two x microst Well, honestly, you have to have commodity futures rolling. The t VIX was the ultimate because it was an ATN which has credit risk. It rolled futures, and it was leveraged, and it was the VIX. It was always going to go down to negative ninety nine point nine percent. But I'm okay with this, Joel. I feel like this is a big tent the industry. The rapper is so malleable that they can really work in a lot of ideas. Some of these are going to solve real life problems. There will be a couple, you know, spots where somebody who doesn't know what they're doing steps into the wrong product, and that's that sucks. So I think you need ratings, but ultimately get ready for more of this. I mean, this is not going away. I heard from someone the sec you know, the products coming in and not just the yield Max but like the buffer which are for older people conservative. Some of those are getting really wonky and we're going to continue to see a lot of derivative use. But most of it I think will be pretty responsible. But there's definitely gonna be the fun stuff trol. I mean, that's just the it's always been this way.
Todd as somebody who is so intimate with the retail crowd and the advice that you're giving to people on YouTube curious, like, what do you recommend people understand about the fine print in the perspectives while they're considering emulating what you've been able to do.
Absolutely, I completely agree that there's a lot of risk with these types of vehicles. So what I always say is to make sure that you match these vehicles with the percentage with the percentages that they are in the indexes. So if you have Apple, which is ten percent of the Nasdaq, or Microsoft, which is ten percent, then I didn't mind having ten percent of my portfolio and MSFO and that was doing really well. It was a nice, steady gainer, and it was doing well until they had maintenance changes. When they had maintenance changes, that sent shockwaves throughout the communities because some people were prematurely margin called just because of the maintenance change. So I would say to keep them matched at no more than they are as the as a percentage of what they traded in the indexes. And also even with that, that's still that could still be a lot of volatility in your account, because you know, you just you want to stay indexed, is what I always say. Keep them. If you're gonna buy these, make sure they're no more than the percentages that they're that they're represented in the indexes. But also just stay indexed, you know, because ninety percent of traders can't beat the S and P, and so stay indexed. Keep these positions small and make them no more than what they are represented in the indexes.
All right, on that note, we're going to wrap. Deniza, Vildanna and Todd. Thank you so much for joining us on Trillions.
Thank you so much for having me.
Thank you, thanks for having.
Us and that story. One hundred percent yields are fueling a retail boom and new quickbook ets. Thanks for listening to Trillions. Until next time. You can find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify, or wherever else we'd like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel webbershow He's at Eric Aultness. This episode of Trillions was produced by Magnus Hendrickson. Bye