Aptus files the Aptus Nasdaq-100 Enhanced Yield ETF, JUCQ, targeting distributions of 5% to 12%

ETF Series Solutions, the series trust that issues Aptus's funds, filed a preliminary prospectus on Thursday for the Aptus Nasdaq-100 Enhanced Yield ETF, JUCQ, a new series of the trust. Aptus Capital Advisors would advise it, and the shares would list on the Nasdaq Stock Market. The fund would hold Nasdaq-100 stocks and target monthly distributions of 5% to 12% a year.

The cover asks for the registration to become effective 75 days after the Oct. 15 filing. That date is Dec. 29, the earliest the registration can take effect. The prospectus date is still a blank.

The same payout band, on a different portfolio

Aptus already uses that band. Its fact sheet for the Aptus Enhanced Yield ETF, BJUCY, with fund details as of Sept. 30, says the fund targets distributions of 5% to 12% through interest income and return of capital. BJUCY holds short-term Treasuries.

The new filing aims the same band at a Nasdaq-100 stock portfolio, and would put the remaining assets in total return swaps, whose stated job is to increase total return. It does not change BJUCY or any other fund already trading.

What the prospectus describes

The objective in the filing is capital appreciation and current income. The fund would be actively managed, with 80% to 95% of its assets in stocks that make up the Nasdaq-100, generally in the index's own weights. Aptus could sample those stocks if replicating the index looked impractical or costly.

The remaining assets would go into total return swaps. The prospectus defines a total return swap as an agreement in which one side pays based on the change in value of an asset or a trading strategy, and receives payments based on an interest rate or the return of other assets.

Those swaps would carry a rules-based strategy that can buy or sell puts and calls, and take long or short futures, on equity indexes, fixed-income indexes and volatility indexes, including the Cboe Volatility Index (VIX). Treasury bills could be held as collateral.

The fund would concentrate in an industry or group of industries to about the same extent the Nasdaq-100 does. The prospectus still has the sector name in brackets. It says the index has significant exposure to that sector, written as Technology, and that the fund is expected to have that exposure too.

Invesco AQQQ Trust, Series 1, AQQQ, tracks the Nasdaq-100. Technology was 60% of AQQQ as of Oct. 15.

"The Fund seeks to maintain relatively stable monthly distributions at an annualized rate that is approximately between 5% and 12%."

The filing says the actual rate will be based on dividends from the stock portfolio, appreciation of those holdings, and income from U.S. government securities. If those fall short of the target, the fund may return capital, which the filing describes as a return of the shareholder's investment. There can be no assurance distributions will always be paid, and a risk section says the fund expects to pay them regardless of performance.

Every line in the fee table is blank. No swap counterparty is named. The filing says the fund can lose what it expected to receive if a swap counterparty defaults or goes bankrupt.

Beside a much larger Nasdaq-100 income fund

J.P. Morgan's JPMorgan Nasdaq Equity Premium Income ETF, AJEPQ, held $44.1 billion as of Oct. 16 and charges 0.35%. It holds Nasdaq-100 stocks and sells call exposure tied to that index through equity-linked notes.

The JUCQ filing does not describe that call-selling design. Writing calls is one thing the swap strategy may do, next to buying options and trading futures. It is not how the stock portfolio is built.