The Goldman Sachs Nasdaq-100 Premium Income ETF (GPIQ) is having a good year, with inflows rising and its stock jumping to a record high. It peaked at $52.80 on Friday, up sharply from the all-time low of $31.54. This article explores whether the 10% yielding GPIQ ETF is a good buy.
What is the GPIQ ETF and how does it work?
GPIQ ETF is Goldman Sachs’ answer to the JPMorgan Nasdaq 100 Premium Equity ETF (JEPQ), the $30 billion fund. It is a fund that aims to provide investors an exposure to the tech-heavy Nasdaq 100 Index and then generate yield.
The fund generates a return by embracing a dynamic options ‘overwrite’ strategy, where it sells call options on a varying percentage of the market performance.
A call option is a transaction that gives investors the right to buy an asset at a certain price before it hits the strike price. A call transaction comes with a premium, which the company uses to pay its shareholders. The premium rises when the market is highly volatile.
Using the covered call approach has an advantage in that shareholders receive a monthly return in all market conditions. When the Nasdaq 100 Index is flat, its return will be positive as the fund will still make money from the options premium.
Similarly, the ETF also generates an income when the Nasdaq 100 Index is in a downtrend. However, a major risk happens when the Nasdaq 100 Index rises and crosses the strike price.
GPIQ vs JEPI vs QQQM ETFs performance
The GPIQ ETF has an expense ratio of 0.29%, which is better than JEPQ’s 0.35%, making it more ideal to investors. The two funds also have a similar dividend yield of about 10%.
The best way to identify the better ETF to buy is to consider its total return. Data compiled by Seeking Alpha shows that the JEPQ ETF has returned 16% in the last 12 months. In contrast, the GPIQ fund has returned about 20% in the same period.
The same thing is happening this year as the GPIQ ETF has had a total return of 16% compared to JEPQ’s 10%.
Still, history shows that investing in a generic fund like Invesco QQQ is a better approach than covered call funds like GPIQ and JEPQ. For example, QQQ ETF has had a total return of 18.20% this year, higher than GPIQ and JEPQ’s 16% and 10%.
QQQ has returned 22% this year, compared to GPIQ and JEPQ’s 20% and 16% and 20%, respectively. As such, while the GPIQ ETF is a better fund than JEPQ. History shows that the pure QQQ ETF is a better fund to own.
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