How to Turn Massive ETF Yields Into Real Profits

Two years (and a few months) ago, we launched our ETF Income Edge service to help investors profitably invest in the rapidly growing world of option strategy, high-yield ETFs sporting yields like 15%, 25%, even 40% or more.

The challenge with these ETFs is managing them to turn those great yields into realized total returns. Investors need to understand that the underlying assets will go up and down. Also, an overly aggressive option strategy can lead to net asset value (NAV) erosion, which can have a significant negative effect on total returns.    

When I select ETFs for the ETF Income Edge portfolio, I focus on NAV stability. New ETFs hit the market every week, so I regularly compare returns between ETFs and their underlying assets. I focus on having a diversified portfolio based on those underlying assets.    

To help manage a portfolio of these funds, I have developed a specific position management strategy. I have been using the strategy in my own ETF Income Edge tracking brokerage account, and I am very happy with the results.

The core of the strategy is to manage the ETFs to maintain a stable, dollar-weighted position size. If an ETF share price increases above a certain level, we sell shares, locking in a profit. If the price falls, we purchase shares, buying more while they’re “on sale.”

Share trade results going into or from a cash balance in the account. Dividends earned go into the cash balance. If you set up an account using this strategy, it’s good to have some capital in a cash balance.

Here is a simple example:    

You start with $5,000 each in 10 high-yield ETFs, for a total commitment of $50,000. With this amount, I suggest having a few thousand dollars in the cash balance.

The goal is to keep each ETF close to a $5,000 value. I recommend checking the current values a couple of times a week. If a position is more than 5% ($250 in this case) above or below the target amount, you buy or sell shares to bring the position’s value back to the target.

Over time, the returns you earn show up as changes in the cash balance. Remember that dividends earned (which happen every day with the ETF Income Edge portfolio) also go into the cash balance.

Here is my experience so far this year. As most asset types declined over the first three months, I saw my cash balance slowly decline, while I was buying shares to maintain position values, offset by dividends coming in. Then, in April, markets turned around and moved strongly higher over the month. During that period, I was selling shares and earning dividends into the cash balance. My cash balance, and thus the return on the account, is significantly higher than it was at the start of the year. From my experience, this somewhat unique portfolio strategy works.

Let’s close out with a new ETF to check out. The Nicholas Nuclear Income ETF (NUKX) is managed to deliver a 12% yield and is the latest addition to the ETF Income Edge portfolio.