HYLD offers a yield of ~11.6% and holds a portfolio of US equity covered call ETFs, aiming to have a similar sector exposure to that of the S&P 500. The top holdings in the HYLD ETF include JEPQ, JEPI, USCC, QQCC, and others. These covered call ETFs hold underlying stocks but also sell call options on those stocks to gain a premium, which is used as the distribution yield in the ETF. Although, selling call options limits the upside potential on the underlying shares, and thus in a bull market, the ETF will not appreciate as much as the underlying holdings. The fund also uses 25% leverage to enhance the growth potential and yield, but this comes at the tradeoff of higher volatility and on a long timeframe, the possibility of lower capital appreciation. In a bull market where drawdowns are minimal, the 25% leverage will work to an investors' advantage, however, in a correction or pullback, these losses will be magnified.
JEPI and JEPQ are also covered call ETFs, where JEPI focuses on S&P 500 companies and JEPQ on Nasdaq companies. JEPI and JEPQ do not use leverage, however, and we feel this provides the ETF with more stability than HYLD.
We would be comfortable with all three names for an investor that is looking for enhanced income at the tradeoff of capital appreciation, although we would place JEPI and JEPQ at the top of the list.