FEPI ETF 2024: The Powerful Analysis of Its High-Yield Potential

The FEPI ETF (Rex FANG & Innovation Equity Premium Income ETF) has been generating buzz among income investors due to its attractive yield and unique approach. With a current yield of 25.2% (as of November 2024) and monthly dividend payouts, it’s no surprise that this relatively new ETF is drawing attention. Despite its debut in October 2023, it has quickly gained traction on platforms like Seeking Alpha and YouTube. Some even label it as a “new cornerstone” for income-focused portfolios. Let’s dive deeper into its structure, strategy, performance, and risks to determine its potential.

What Is FEPI ETF?

The FEPI ETF is an actively managed fund designed to generate current income while maintaining the potential for share price appreciation. It achieves this by employing a covered call strategy on stocks in the SOLE Active FANG Innovation Index. This index focuses on tech and innovation-driven companies, aiming to capture growth in tomorrow’s technology leaders.

Understanding the SOLE Active FANG Innovation Index

index includes 15 highly liquid technology stocks. It consists of:

• Eight Holdings: Tesla, Microsoft, Netflix, Nvidia, Apple, Amazon, Meta, and Alphabet.
• Seven Additional Stocks: Selected from top-traded companies across tech-heavy sectors like semiconductors and software.

Selection Criteria

The index selects companies based on:

1. A minimum market cap of $10 billion.
2. Top-ranked stocks by average daily trading volume over 12 months.
3. Monthly rebalancing and quarterly reconstitution.

This approach ensures the index is composed of high-quality, high-potential stocks. Since its inception in 2014, the index has outperformed benchmarks like the NASDAQ 100 and S&P 500, showcasing its long-term growth potential.

FEPI ETF Strategy

The FEPI ETF generates income through a traditional covered call strategy. Here’s how it works:

1. The fund invests in all 15 stocks in the index.
2. It sells call options on these stocks, earning premiums.
3. Calls are written slightly out of the money, allowing for limited capital appreciation while generating income.

Unlike synthetic strategies employed by some competitors, the FEPI ETF uses real stock holdings for its covered calls. This traditional approach aligns income generation with potential growth.

Benefits of FEPI ETF

1. High Yield

The standout feature of the FEPI ETF is its 25.2% annualized yield. This is significantly higher than most income-focused ETFs, making it appealing for income-seeking investors.

2. Monthly Payouts

Monthly distributions offer consistent income, which is advantageous for retirees or those relying on regular cash flow.

3. Focused Innovation Exposure

The underlying index is concentrated on leading tech innovators, providing exposure to high-growth sectors.

Risks and Limitations

While the FEPI ETF offers several benefits, investors should consider its risks:

1. Lack of Diversification

The ETF holds only 15 stocks, making it less diversified compared to broader ETFs like the NASDAQ 100 or S&P 500. This limited scope increases volatility, as the performance of a few stocks can heavily influence the ETF’s returns.

2. Tech Sector Volatility

The tech-heavy focus makes the fund vulnerable to market corrections. During prolonged tech downturns, such as the early 2000s dot-com crash, similar strategies could face significant losses.

3. Limited Historical Data

Launched in October 2023, the FEPI ETF lacks a long performance history. While the underlying index has a solid track record, the fund’s execution during prolonged downturns is untested.

Read Also - Top 5 Powerful Defiance ETF That Pay High Dividends

4. Capped Upside

The covered call strategy limits the fund’s potential capital appreciation. While this generates income, it could underperform during strong bull markets.

Comparing FEPI ETF and QQQY ETF

The QQQY ETF (NEOS NASDAQ 100 High Income ETF) is another covered call fund that focuses on tech stocks. Here’s a side-by-side comparison:

Feature	FEPI ETF	QQQY ETF
Yield	25.2%	~12%
Holdings	15 stocks	100 stocks
Tax Efficiency	Not tax-efficient	Uses 1256 contracts for lower taxes
Volatility	Higher	Lower due to diversification
Launch Date	October 2023	January 2024

While the FEPI ETF offers a higher yield, its concentrated portfolio makes it more volatile. On the other hand, the QQQY ETF provides a more stable option for conservative investors.

Performance Analysis

FEPI ETF

Since its launch, the FEPI ETF has delivered a 2.41% total return (including reinvested dividends). However, its share price has been more volatile due to its concentrated holdings.

QQQY ETF

The QQQY ETF has outperformed, delivering a 7.89% total return over the same period. Its broader diversification and tax efficiency contribute to its stability.

Read Also - YIELDMAX ETFs 2024: Powerful High Yields with Key Considerations

Dividend Consistency

FEPI’s monthly dividends have ranged from $1.20 to $1.80 per share, reflecting some variability. Meanwhile, QQQY’s dividends have been steadier, typically around $0.65 per share.

Should You Invest in FEPI ETF?

The FEPI ETF is an intriguing option for investors seeking high income. However, its lack of diversification and tech-heavy focus make it better suited as a supplementary investment rather than a cornerstone of your portfolio. Here are some key takeaways:

• For Income Seekers: The 25.2% yield and monthly payouts are highly attractive.
• For Growth Investors: The capped upside due to the covered call strategy might limit your long-term gains.
• For Risk-Averse Investors: Consider alternatives like the QQQY ETF, which offers more stability.

Conclusion

The FEPI ETF has garnered attention for its high yield and focus on tech innovation. While it has potential, its concentrated portfolio and limited track record pose risks. Investors should carefully consider these criteria to see if they fit with their objectives. For those willing to embrace the volatility, it could serve as a valuable income-generating tool. However, diversification and tax efficiency should remain top priorities when building a balanced portfolio.

Advice for you :

FEPI ETF - This article is just for information purpose. So if you want to make any kind of investment, please consult the experts yourself. Because if you make any kind of loss or profit, then we are not responsible for that. And to see such useful information at the right time, visit https://mymoneymates.com

Faq