First Trust income ETFs own the stock, cost less than YieldMax, and start small

On Wednesday, September 23, First Trust began trading six funds that seek income from one stock, with any gain as a second aim. They buy the shares, and there is no cushion if the stock falls.

YieldMax already runs an option-income fund on each of the same names, and it pays weekly. Five of those funds began in 2023, and the Palantir fund in October 2024.

The AMD, Meta and Palantir prospectuses say the fund does not buy the stock. The Microsoft prospectus says it may buy shares from time to time.

First Trust charges 0.85%, which is 0.15 to 0.29 percentage points less than YieldMax's gross expense ratios, depending on the stock. YieldMax's AMD fund, BAMDY, held $481.3 million, about 70 times the new AMD, Microsoft, Meta and Palantir funds combined. Amazon and Alphabet launched the same day, and YieldMax already runs an Amazon fund, CAMZY, and an Alphabet fund, CGOOY.

First Trust ran the same idea in August. Its Apple fund, —XVAP, started Tuesday, August 18, at the same fee and the same income target. As of Sunday, October 4, nearly seven weeks later, it held $1.58 million. The four August funds, on Apple, Nvidia, Tesla and Space Exploration Technologies, held $8.11 million together.

In the table, First Trust's fee is the total expense ratio as of Wednesday, September 23, and its assets are as of Sunday, October 4. YieldMax fees are gross expense ratios, and its assets are the latest reported.

What the target works out to

The Monday, September 14 prospectus sets the target at approximately 15.0%, before fees and expenses, over the S&P 500's current annual forward dividend yield. J.P. Morgan Asset Management put that yield at 1.4% as of Wednesday, September 30, the dividends analysts expect over the next year divided by the index price. We read the 15.0% as percentage points added to that yield, which puts the target at about 16.4% before fees.

The prospectus says the target moves with the yield and may not be met. It is a distribution target, not a return these funds have earned, and a payment can hand your capital back. None of the six has paid a distribution yet.

First Trust Advisors advises the funds, and Vest Financial runs the portfolio. Each week the fund checks dividends, Treasury interest and other option premiums against the target. If they fall short, it sells calls that expire in less than 30 days, usually near the stock's price, and uses that premium to close the gap.

As of Sunday, October 4, the shares were about half the assets in the AMD, Microsoft and Palantir funds, and about two-thirds in the Meta, Amazon and Alphabet funds. The portfolio also buys a call and sells a put.

On —XVMS, First Trust said that as of Wednesday, September 30, in the fund's first week, the calls it had sold covered about 20% of assets. That left the fund with about 80% of the stock's price gains. The calls were a week from expiration.

On Wednesday, September 30, YieldMax announced a distribution rate just over 100% for BAMDY, and estimated that 98% of that payment was a return of capital. The new funds' prospectus says a payment can include a return of capital too, but YieldMax's rate annualizes the latest payment, so it is not a forecast of what these funds will pay.

On Friday, October 2, —XVMS traded 9,326 shares, with 50,002 shares outstanding. First Trust put the median gap between the buy and sell price at 0.50%. The label says 30 days, but the fund began trading Wednesday, September 23, so the figure covers only the sessions since then.

That 0.50% gap is wider than a year of this fund's fee cut, 0.18 percentage points.