QYLG And XYLG Are Hybrid Funds Generating Income And Growth, But Which Is The Better Buy?

Summary

  • QYLG and XYLG are the cousin funds to QYLD and XYLD which only utilize a 50% covered call strategy to generate income so investors can also recognize capital appreciation gains.
  • I do a side-by-side comparison of QYLG and XYLG over the same period with reinvesting the distributions and also without reinvesting the distributions.
  • For investors who are interested in generating capital appreciation and respectable amounts of distribution yield, these hybrid funds could satisfy both needs.
  • I do much more than just articles at Barbell Capital: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

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I have written several articles on the Global X Covered Call Funds such as the Global X Nasdaq 100 Covered Call ETF (QYLD), and the Global X Russell 2000 Covered Call ETF (RYLD), and there have been many questions about the Global X Covered Call & Growth ETFs. The Global X Covered Call ETFs have become increasingly popular as their call option strategy has delivered high-yielding distributions even through periods of volatility. One of the major criticisms of these funds is that almost all the upside is capped due to its covered call strategy. These investors make a good point as there is certainly a tradeoff where capital appreciation is sacrificed for double-digit yielding distributions which are paid monthly.

In 2020, Global X came out with two hybrid funds with the objective of blending above-average yield with modest potential for capital appreciation. The Nasdaq 100 Covered Call & Growth ETF (NASDAQ:QYLG) and the Global X S&P Covered Call & Growth ETF (NYSEARCA:XYLG) are Global X's solutions to providing income without sacrificing all of the gains the markets experience. These funds were created on 9/18/20, so this will be a true apples-to-apples analysis to see which fund has performed better for shareholders since their inception from an income, capital appreciation, and ROI perspective. I am a shareholder of both funds, and I am agnostic as to which fund has performed better.

Reasons to invest in QYLG

QYLG Fund

Global X

An overview of XYLG and QYLG

XYLG and QYLG are similar to the traditional covered call funds from Global X, but the main difference is that XYLG and QYLG only write covered calls on 50% of the portfolio. Both funds went public on 9/18/20. XYLG has $39.36 million in net assets, holds 506 positions, has a distribution yield of 4.45%, and a total expense ratio of 0.60%. QYLG is a larger fund as it has $63.88 million in net assets, holds 102 positions, has a distribution yield of 5.93%, and a total expense ratio of 0.60%.

These funds are very similar to each other, and it just depends if you want to invest in the S&P 500 or the Nasdaq 100. XYLG follows a covered call buy-write strategy on 50% of its portfolio and invests in the S&P 500. XYLG holds shares of the companies within the S&P 500 index and has appreciated 35+% since its inception. QYLG is similar, but instead of the S&P 500, it invests in the companies within the Nasdaq 100 the deploys its call buy-write strategy on 50% of the portfolio. QYLG has appreciated by 27.34% since its inception.

Parameters for my side by side comparison

I am going to crunch the numbers on QYLG and XYLG from two separate investment perspectives. I couldn't get the price on 9/18/20 when these funds went public, so I am using the share price from 9/29/20 as the initial investment in both funds. In each of the comparisons, I will have each of the monthly distributions and the price the fund was on the distribution date to accurately account for how much money would be generated per month from each monthly distribution. I will create two side-by-side comparisons. The first comparison will be without reinvesting the distributions and taking the monthly income as cash. The second comparison will be looked at as if each of the monthly distributions were reinvested.

Crunching the numbers and comparing QYLG and XYLG without reinvesting the distributions

In my first set of number crunching, the investor will have purchased 100 shares of each QYLG and XYLG and will not be reinvesting the distributions. All distributions will be taken as cash.

QYLG

On 9/29/20, QYLG closed at $27.15, so the original investment of 100 shares cost $2,715. Since its inception, there have been 15 monthly distributions from QYLG. Based on 100 shares, an investment in QYLG would have appreciated by $389 (14.33%) as shares are currently $31.04. Over the past 15 months, QYLG has generated $3.66 in income, and 100 shares of QYLG would have generated $366.53 in income for its shareholders. Since 9/29/20, the total ROI would be $755.53 (27.83%), with $389 coming from capital appreciation and $366.53 coming from distributions.

QYLG Distributions

QYLG Distributions

Global X


QYLG Distributions

Steven Fiorillo

XYLG

XYLG closed at $25.39 on 9/29/20, so the original investment of 100 cost $2,539. Based on 100 shares, an investment in XYLG would have appreciated by $598 (23.55%) as shares are currently $31.37. Over the past 15 months, XYLG has generated $2.72 in income, and 100 shares of XYLG would have generated $272.48 in income for its shareholders. Since 9/29/20, the total ROI would be $870.48 (34.28%), with $598 coming from capital appreciation and $272.48 coming from distributions.

XYLG Distributions

Global X


XYLG Distributions

Steven Fiorillo

Overall, if you're taking the income from distributions, QYLG would have been a better investment, but XYLD would have generated a larger ROI. While QYLG generated an additional $94.05 in income, XYLG provided an additional $209 in capital appreciation, creating an additional $114.95 in value.

QYLG

XYLG

Capital Appreciation

$389.00

$598.00

Income Generated

$366.53

$272.48

Total Profit

$755.53

$870.48

(Source: Steven Fiorillo)

Crunching the numbers and comparing QYLG and XYLG with reinvesting the distributions

Now I am going to crunch the numbers, but instead of taking the income every month, the distributions will be reinvested.

By reinvesting the distributions, QYLG would have generated $384.37 in income, which is a 14.16% yield on the original investment. Since all distributions were reinvested, the total share count would have increased by 12.47 as the investments total shares would have become 112.47. Since 9/29/20, the total ROI would be $775.94 (28.58%), with $391.57 coming from capital appreciation and $384.37 being reinvested from distributions.

QYLG

Steven Fiorillo

The investment in XYLG would have seen its share base increase by 9.45 shares by reinvesting the distributions. $2.72 was generated in income from XYLG shares, and through compounding, this would have allowed $283.21 to be generated in income since 9/29/20. The original investment of $2,539 would have appreciated by $894.59, creating an ROI of 35.24%. $283.21 of the gains was generated from distribution income, and $611.37 was generated from capital appreciation.

XYLG

Steven Fiorillo

By reinvesting the distributions, QYLG generated more income, but the capital appreciation from XYLG provided a larger ROI to shareholders. QYLG threw off an additional $101.16 in income, but XYLG appreciated an additional $219.80 making it the better overall investment as shareholders would have come out with an additional $118.64.

QYLG

XYLG

Capital Appreciation

$391.57

$611.37

Income Generated

$384.37

$283.21

Total Profit

$775.94

$894.58

(Source: Steven Fiorillo)

The benefits of compounding interest

If you don't need to take the distributions as income and have the ability to reinvest them, over time, these can become a powerful tool to generate a larger ROI. As you reinvest each distribution, your share count grows, increasing the amount of capital generated from each monthly distribution.

By reinvesting the distributions from QYLG, you would have generated an additional $2.57 capital appreciation, $17.84 in income, and $20.41 in total profit. XYLG would have had similar results as its capital appreciation would have increased by $13.37, the distributable income would have increased $10.73, and an additional $24.10 in total profit.

QYLG & XYLG comparison

Steven Fiorillo

Conclusion

Overall, Global X has accomplished the goals of generating capital appreciation while throwing off substantial monthly income to its shareholders. QYLG and XYLG are interesting hybrid funds for investors who want the benefits of generating monthly income while still having the ability to recognize capital appreciation. Unlike their cousins QYLD and XYLD, QYLG and XYLG provide investment aspects that appeal to multiple investment thesis's.

If you are unsure which fund to choose, the previous history indicates that XYLG has been the superior investment in ROI. QYLG has generated more income than XYLG, but XYLG's capital appreciation has made it the better performing fund. At the end of the day, you need to decide on your investment thesis. If you are looking to maximize your distribution income while generating modest capital appreciation, then QYLG would better suit your investment thesis. If you're looking to maximize your ROI and generate more capital appreciation with respectable income, then XYLG is a better pick. Overall, both funds have strong points, but XYLG has performed better since its inception.

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This article was written by

Steven Fiorillo profile picture
21.53K Followers
Author of Barbell Capital
Build your portfolio utilizing growth, value, dividends and options

I am focused on growth and dividend income. My personal strategy revolves around setting myself up for an easy retirement by creating a portfolio which focuses on compounding dividend income and growth. Dividends are an intricate part of my strategy as I have structured my portfolio to have monthly dividend income which grows through dividend reinvestment and yearly increases. Feel free to reach out to me on Seeking Alpha or https://dividendincomestreams.substack.com/

Disclosure: I/we have a beneficial long position in the shares of QYLG, XYLG, QYLD, RYLD, XYLD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: I am not an investment advisor or professional. This article is my own personal opinion and is not meant to be a recommendation of the purchase or sale of stock. Investors should conduct their own research before investing to see if the companies discussed in this article fit into their portfolio parameters.

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