QDPL: 4X the distribution of the S&P500 plus Growth with this Pacer ETF... And NO Options.

Summary

In this video, Dave from Wealth Adventures discusses the QDPL ETF from Pacer ETFs, which aims to deliver quadruple the dividends of the S&P 500 with modestly reduced exposure. He explains the ETF's strategy, which combines S&P 500 investments and dividend futures contracts to generate higher yields. Dave provides insights into QDPL's performance, dividend yield, and tax efficiency, noting its appeal to income investors. While impressed by its returns, he critiques its 60 basis point fee and suggests lowering costs for greater growth potential. The video targets income-focused investors considering diversified options.

Takeaways

• 📈 The video discusses QDPL, an ETF from Pacer that focuses on providing cash distributions equal to 400% of the S&P 500's ordinary yield.
• 🐄 QDPL is compared to COWS, another ETF from Pacer known for its focus on cash cows in the market.
• 💵 QDPL offers a distribution yield of 5.79%, which is significantly higher than the current 1.25% yield of the S&P 500.
• 💡 The ETF allocates 85-89% of its assets to replicating the S&P 500, with the remainder used for purchasing dividend futures contracts.
• 🔄 These dividend futures contracts are rolled over annually in December and are meant to enhance income over the long term.
• 💰 The ETF has over $500 million in net assets under management, with the potential to grow significantly if expense ratios are lowered.
• 🔎 The expense ratio for QDPL is currently 60 basis points, which some investors might consider too high for the relatively simple strategy it employs.
• 📊 Over the past three years, QDPL has delivered a 33% total return, trailing slightly behind the S&P 500’s 37% return.
• 📉 The fund is positioned as a good option for income-focused investors, especially those seeking tax-efficient strategies due to its return of capital.
• 🛠 The host suggests that if Pacer can reduce the expense ratio further, the fund could attract more assets and grow significantly.

Q & A

What is QDPL, and who offers it?

QDPL is an exchange-traded fund (ETF) offered by Pacer ETFs. It aims to provide cash distributions equal to 400% of the S&P 500 ordinary yield, with about 85-89% exposure to the S&P 500.

How does QDPL generate its higher yield compared to the S&P 500?

QDPL invests about 85-89% of its funds in the S&P 500 and uses the remaining 11-15% to purchase dividend futures contracts. These contracts allow the fund to offer cash distributions four times higher than the S&P 500 yield.

What are dividend futures contracts, and how do they work in QDPL?

Dividend futures contracts allow investors to bet on the future level of dividends. In QDPL, these contracts are bought with 11-15% of the fund's assets and can potentially deliver higher returns over time by isolating dividends from stock performance.

What is the current distribution yield of QDPL?

As of June 30, 2024, QDPL has a distribution yield of 5.79%, which is significantly higher than the current S&P 500 dividend yield of around 1.2-1.25%.

What is the fee associated with QDPL, and why is it considered high?

QDPL has an expense ratio of 60 basis points (0.60%). The speaker argues that this fee is relatively high, especially since most of the fund's strategy involves replicating the S&P 500 and using straightforward dividend futures contracts.

How does QDPL compare to other income-focused ETFs like JEPI or SPYI?

QDPL has generated a total return of around 33% over the past three years, slightly trailing the S&P 500's 37% but outperforming JEPI's 28%. It offers a balance between growth and income, making it attractive for income investors.

What are the potential tax advantages of QDPL?

A significant portion of QDPL's distributions comes from a return of capital, which is not taxed as ordinary income. This makes the fund potentially tax-efficient for investors looking to minimize their tax burden on income distributions.

What type of investors might find QDPL appealing?

QDPL is likely to appeal to income investors, especially those nearing or in retirement who want both dividend income and tax efficiency. It may also be attractive to investors looking for diversification beyond traditional covered call ETFs.

What are some potential downsides of investing in QDPL?

One downside is the 60 basis point fee, which is relatively high for a fund primarily invested in the S&P 500. Additionally, the dividend futures strategy could underperform in years when dividends are reduced, creating some uncertainty.

How has QDPL performed relative to the S&P 500 and other ETFs over the past year?

Over the past year, QDPL has returned 28%, slightly underperforming the S&P 500, which returned 31%, but it has outperformed several income-focused ETFs like JEPI (16%) and XYLD (14.6%).