Q: Hi 5i Team,
I'm interested in your views of buying something like UMAX using a margin account. It seems like the math works out provided a particular financial institution has a reasonable margin rate. I'm wondering if there's an angle I'm missing here. If not, is UMAX a good option for this idea? Or something else? I need more utilities and industrials in my portfolio so this would also help add to these.
Thanks as always for this wonderful service!
Lisa
I'm interested in your views of buying something like UMAX using a margin account. It seems like the math works out provided a particular financial institution has a reasonable margin rate. I'm wondering if there's an angle I'm missing here. If not, is UMAX a good option for this idea? Or something else? I need more utilities and industrials in my portfolio so this would also help add to these.
Thanks as always for this wonderful service!
Lisa
5i Research Answer:
UMAX offers a 14.24% current yield, but note that much of the distribution is in the form of return of capital (the amount will vary each year). Thus, its one-year all-in return is 7.34%. This may still be higher than the after-tax cost of margin, but certainly not as attractive at 14%+. We consider the ETF fine for income seekers, and utilities are generally less volatile, but investors need to understand how the payout works here.