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Zoom Video Communications forecast third-quarter profit above Wall Street estimates on Monday, a positive sign for the company that has tried to overcome a post-pandemic slowdown by offering a wider range of collaboration tools.
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Arkifi, an artificial-intelligence startup that
provides workflow automation tools for financial institutions
including hedge funds and investment banks, said on Monday the
company had raised over $9 million in seed financing.
Nvidia investors expect the chip designer to forecast quarterly revenue above estimates when it reports results on Wednesday. Their only question is, by how much?
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It's been an interesting couple of years to be an investor. After suffering the worst stock market plunge in over a decade, the major market indexes have come roaring back, each gaining more than 20% from their respective lows. This has many market watchers declaring the arrival
Investors are increasingly interested in dividend ETFs with high dividend yields that pay monthly, and the
First Trust BuyWrite Income ETF (
NASDAQ:FTHI)
is one such option, with a monthly payout and an
8.5% dividend yield. However, FTHI may not be the best choice for income investors. Let's see why.
What is FTHI ETF’s Strategy?
According to First Trust, FTHI looks to generate income for its investors “by investing in equity securities listed on U.S. exchanges of all market capitalizations and by utilizing an ‘option strategy’ consisting of writing (selling) U.S. exchange-traded covered call options on the Standard & Poor's 500 Index (the "Index").”
This “option strategy” entails FTHI writing “U.S. exchange-traded covered call options on the Index in order to seek additional cash flow in the form of premiums on the options that may be distributed to shareholders on a monthly basis.”
This strategy is a great way to generate income, but investors should be aware that there is a tradeoff. By selling these covered calls, FTHI potentially leaves upside on the table. Selling covered calls can cap the upside from capital appreciation because if the price of the underlying stock rises beyond the strike price, FTHI investors forgo these additional gains.
To its credit, fund sponsor First Trust makes this clear right from the get-go, stating that “the fund’s primary investment objective is to provide current income,” while capital appreciation is its “secondary objective.”
FTHI's Portfolio
FTHI has a diverse and well-rounded portfolio. The income-oriented ETF holds 225 positions, and its top 10 holdings account for just 30.6% of the fund. You can check out an overview of
FTHI’s top 10 holdings below using TipRanks’ holdings tool.
As you can see, the fund’s holdings don’t look all that different from your typical broad market or S&P 500 fund (
SPX
), with mega-cap stocks like Apple (
NASDAQ:AAPL
), Microsoft (
NASDAQ:MSFT
), Amazon (
NASDAQ:AMZN
), Nvidia (
NASDAQ:NVDA
) and Alphabet (
NASDAQ:GOOG
) (
NASDAQ:GOOGL
) populating the top 10.
Is FTHI Stock a Buy, According to Analysts?
Turning to Wall Street, FTHI has a Moderate Buy consensus rating, as 174 of analyst ratings are Buys, 49 are Holds, and three are Sells. At $23.95, the
average FTHI stock price target implies 16.10% upside potential.
An Abundance of Alternatives
FTHI’s main drawback is its steep expense ratio of 0.85%. This is an actively-managed ETF that runs a fairly complex strategy, so it’s understandable that the fees will be more expensive than those of a typical index fund.
However, FTHI’s 0.85% expense ratio is also considerably higher than many of its actively-managed peers that employ similar strategies, pay dividends on a monthly basis, and sport high dividend yields. For example, the
JPMorgan Equity Premium Income ETF (
NYSEARCA:JEPI)
, the largest and most popular ETF in this space, has a much lower expense ratio of 0.35%.
Similarly, the
JPMorgan Nasdaq Equity Premium Income ETF (
NASDAQ:JEPQ)
also has an expense ratio of 0.35%. Even the
NEOS S&P 500 High Income ETF (
BATS:SPYI)
, a newer entrant into the space, which itself has a relatively high expense ratio of 0.68%, is comparatively cheaper than FTHI.
On the surface, the 0.85% expense ratio means that investors pay $85 in fees and expenses on a $10,000 investment in year one, which might not sound too bad in and of itself. But these expenses compound over time.
Over the course of 10 years, assuming that the fee stays where it is now and that the fund returns 5% per year, this same investor would pay an astounding $1,049 in fees or more than one-tenth of their initial investment. For comparison, an investor in JEPI or JEPQ would pay a far more reasonable $443 in fees over the course of 10 years.
Furthermore, in addition to having lower expense ratios, these three alternatives currently feature higher yields than FTHI’s current dividend yield of 8.5%.
JEPI's dividend yield is 10.2%, while
JEPQ currently yields 12%.
SPYI’s dividend yield stands at 10.9%.
Below, you’ll find
a comparison of FTHI and these alternatives from TipRanks’ ETF Comparison Tool, which allows investors to compare up to 20 ETFs based on a wide variety of criteria.
Past Performance
FTHI's performance in recent years has been decent, but it hasn't really done enough to justify its high fees. From the beginning of the year to the end of July, the fund's total return was a solid 15.1%. Over the past year, FTHI's total return was 9.5%, and its three-year annualized return was 9.2%, which are respectable returns.
However, over the longer term, FTHI's performance looks subpar, with a five-year annualized total return of just 4.5%. Keep in mind that these total returns take FTHI's dividend payments into account, so the performance has been pretty mediocre even with the dividend.
It's difficult to compare FTHI to its aforementioned peers, as JEPQ and SPYI are fairly new ETFs, and JEPI has only been around for three years, but we can still compare it to JEPI over that time frame. FTHI leads JEPI both year-to-date and over the past year (with respective total returns of 15.1% and 9.5% versus JEPI's 7.3% and 8.1%) but JEPI beats FTHI over a three-year time frame, with a superior total return of 11.5% versus FTHI's 9.2%.
Furthermore, FTHI has underperformed the broader market over time. The
Vanguard S&P 500 ETF (
NYSEARCA:VOO)
boasts one-, three- and five-year annualized returns of 12.9%, 13.7%, and 12.2%, respectively, beating FTHI over each time frame.
The Takeaway
FTHI’s 8.5% dividend yield and monthly payout schedule are enticing, and the ETF offers investors ample diversification. However, the fund's performance over time doesn't do enough to justify its high fees. Additionally, for investors interested in monthly payouts and high yields, there are plenty of ETFs out there with similar strategies that feature both higher dividend yields and lower expense ratios, meaning that investors are likely better off with these alternatives.
Disclosure
One of the best things about participating in the stock market is that even relatively small investments can make a big impact on your retirement portfolio over long time frames. Those compounding gains will often be amplified by dividend payments, too, which an investor can choo
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