QDTE NAV Erosion?! NAV Erosion Myth Continues... Total Return = The Ultimate TRUTH

Summary

In this video, the speaker debunks the myth of NAV erosion, especially in covered call ETFs like QDT (Roundhill NASDAQ 100 Covered Call ETF). They explain that while stock prices may show declines, the true measure of an ETF’s performance is total return, which includes dividends. Using QDT as an example, the speaker demonstrates how it outperforms the Nasdaq 100 (QQQ) in terms of total return, even though its stock price may be lower. The video encourages investors to focus on total returns, not just stock prices, for a more accurate assessment of an investment’s performance.

Takeaways

• 😀 NAV erosion is a myth—it's not a valid concern for ETFs like QDT that have positive returns, even if the stock price fluctuates.
• 😀 Stock price alone doesn't tell the full story of an ETF's performance—total return, including dividends, is what really matters.
• 😀 QDT outperforms both other NASDAQ 100 covered call ETFs and the popular QQQ index when considering total return.
• 😀 Distributions paid by QDT reduce the stock price, but they contribute to the total return, making it appear like 'NAV erosion' when it's actually just income distribution.
• 😀 Total return is the correct metric for evaluating ETF performance—this includes dividends and reinvestment, not just the price changes.
• 😀 Comparing stock prices without considering dividends leads to a misleading view of an ETF's performance and ignores how income-generating strategies work.
• 😀 QDT's performance, when factoring in reinvested dividends (DRIP), results in significant growth, even when the stock price is down.
• 😀 Looking at P&L reports can be deceptive because brokers often don't account for reinvested dividends, which can make it look like the investment isn't doing as well as it is.
• 😀 If you ignore the total return, you're missing the most important aspect of investing in funds with regular income distributions like QDT.
• 😀 To accurately compare the performance of ETFs, always focus on total return tools that show reinvestment, not just stock price.
• 😀 NAV erosion only applies when a fund is underperforming; with QDT, the returns are positive, making NAV erosion claims invalid.

Q & A

What is the main topic of the video?

The main topic of the video is the myth of NAV erosion, specifically in relation to the Roundhill NASDAQ 100 Covered Call ETF (QDT). The creator aims to debunk the idea that QDT is experiencing NAV erosion despite a decline in its stock price.

What is NAV erosion, and why is it mentioned in the video?

NAV erosion refers to a perceived reduction in the Net Asset Value (NAV) of an ETF or fund, often mistakenly inferred from a drop in stock price. The video addresses this misconception, particularly regarding QDT, which some believe is suffering from NAV erosion due to its stock price decline.

How does the stock price of QDT compare to QQQ in the past year?

In the last year, QDT’s stock price has declined from $46.44 to $43.29, a drop of about 7%. In contrast, QQQ, the NASDAQ 100 index fund, has risen by 32%, showing a significant difference in stock price performance.

Why is the stock price decline of QDT misleading when evaluating its performance?

The stock price decline of QDT is misleading because it doesn’t account for the weekly distributions (dividends) the ETF pays. The total return, which includes dividends, provides a more accurate measure of performance than just the stock price.

What is the importance of looking at total return instead of stock price?

Total return includes both the capital appreciation (or depreciation) of the stock price and the dividends or distributions paid by the ETF. This provides a more complete picture of the fund’s overall performance, unlike stock price alone, which only reflects one part of the investment's value.

How does QDT’s total return compare to QQQ’s total return?

QDT has outperformed QQQ in total return. A $10,000 investment in QDT grew to $11,857, whereas the same investment in QQQ grew to $11,549, even when dividends are not reinvested.

What happens when QDT pays out dividends?

When QDT pays out dividends, these payouts reduce the stock price (since they come out of the fund’s NAV). However, these dividends add to the total return of the investment, so even though the stock price drops, the overall value of the investment increases when including the dividends.

What is a DRIP, and how does it affect the performance of QDT?

A DRIP (Dividend Reinvestment Plan) automatically reinvests dividends back into the ETF, allowing for compounding growth. In the video, the creator’s investment in QDT has grown from $180,000 to $215,000 due to DRIP, showing how reinvesting dividends contributes to long-term investment growth.

What is the creator’s personal experience with QDT’s performance?

The creator personally invested $180,000 in QDT, which grew to $215,000 due to reinvesting dividends through DRIP. Despite only seeing a $12,249 gain in their P&L (because brokers don’t account for reinvested dividends), the true value of their investment has increased significantly.

Why does the creator ignore the P&L in their brokerage account?

The creator ignores the P&L in their brokerage account because it doesn’t account for the reinvested dividends. The broker only shows the stock price changes, not the true value of the investment, which includes dividends that have been reinvested through DRIP.

What is the creator’s final message regarding NAV erosion and investing in QDT?

The creator urges viewers to stop focusing on stock prices to evaluate performance and instead look at the total return, which includes dividends and distributions. They emphasize that NAV erosion is a myth, particularly for funds like QDT, which can outperform the underlying index (QQQ) when considering total return.