Summary MST is a leveraged ETF aiming for 150%-200% of MSTR's daily returns, using derivatives and leverage for active trading. Despite weekly distributions, the fund's total returns are negative, reflecting both payouts and recent declines in underlying holdings. Long-term investors face high risks due to leverage, daily rebalancing, and the questionable long-term outlook for MSTR and BTC exposure. I rate MST a Hold, as its structure favors traders over investors and lacks a compelling case for long-term capital appreciation. Defiance Leveraged Long + Income MSTR ETF ( MST ) is a new ETF, launched in May. About two months old, I wanted to take a look at it and see how it related to Strategy ( MSTR ), being a fund based on that stock. Moreover, what should the investor make of "Leveraged Long + Income" part of its name as they stumble upon it? I found that it's much long-term or income-focused about it, and I rate it a Hold, thinking it too risky over time to be a good Buy. Performance So Far The first thing to note is the frequency of distributions. MST has paid weekly since its first dividend on May 20th. MST Dividend History (Seeking Alpha) Altogether, a single share has received $1.9178 in dividends since the launch. Price vs. Total Returns (Seeking Alpha) Thus, some of the price decline since launch is a consequence of these distributions, but the fact that total returns are negative also indicates that the holdings themselves have been down recently. What we are seeing, however, is that the fund prioritizes liquidity and monetization for its shareholders, so let's look at the strategy and portfolio behind this dividend policy. Concept and Holdings According to their prospectus , MST is an actively managed ETF that engages in derivative trades, in order to achieve daily returns of 150% to 200% of MSTR. While not a given, the fund may also use leverage in addition to their derivative position to achieve this goal. The choice of derivatives and timing of leverage are all subject to management's situational judgment. In short, it's a fund that actively trades on the swings of MSTR. It also means that the holdings are highly dynamic. Thankfully, the manager's website gives an up-to-date display of their holdings. Partial Holdings as of July 2, 2025 (Defiance Website) The screenshot (above) from that page shows parts of the holdings, but more or less captures what happens inside this ETF. The derivatives vary between swap agreements and call options. The calls are staggered across several strike prices, in order to provide flexibility to the manager based on market movements. This includes creating call credit spreads, in order to generate income in the portfolio. The Treasury positions (either directly or through funds), meanwhile, serve as collateral for the derivative positions they take. The image I've displayed is truly a snapshot, as per the prospectus: At the end of each trading day, the Fund’s swaps and options are marked to market (valued based on current market prices), and the Fund’s investment adviser rebalances the portfolio to maintain leveraged exposure of approximately 150% to 200% of the Underlying Security’s share price. Given this much activity, it's not surprising that distributions are regularly passed to shareholders. Nevertheless, management states that MST's primary investment objective is long-term capital appreciation, with income being secondary. Future Outlook The investment objective seems to suggest that MST is a fund that could be bought with long-term intentions, perhaps buying a large position and reinvesting the weekly dividends. While this would provide many opportunities of compounding, there are plenty of ways this can pan out badly for long-term investors. Let's talk about the underlying security first: MSTR. I've covered it twice, and last time I rated it a Hold. While that was in February, I am not of a mind to update that rating. One can easily surmise that I won't think MST is a Buy if I don't think that about MSTR. I'll just quote my own closing remarks from there: I take issue with the idea that selling shares at a premium to the portfolio to buy more creates "BTC yield," any more than Berkshire doing the same would create "KO yield" with more shares of Coca-Cola. Without a source of earnings (something Berkshire has) to support this BTC accumulation, it's not clear why those who believe in BTC would aim for MSTR instead of buying the BTC directly. It just doesn't make sense to me. For a long-term investor to see appeal in an ETF that has the long term as part of its investment objective, we need to be able to see the long-term potential in the underlying security, and I already find that dubious. MST holding options and its leverage are both especially risky to long-term investors. The potential for magnified losses on even a 5% drop in BTC that gets locked in by daily rebalancing isn't something to ignore. The 1.31% expense ratio doesn't make recovery of principal much easier over time. A similar income fund that I've covered before is YieldMax MSTR Option Income Strategy ETF ( MSTY ). It employs synthetic covered calls and has the effect of regularly passing through gains to shareholders. While it isn't without risks, the potential for losses aren't enhanced in their portfolio, and I didn't even find that to be a Buy. In my view, MST is more a trader's security. MSTR effectively operates as a derivative of Bitcoin ( BTC-USD ), making MST a derivative of a derivative, potentially very volatile and risky. Conclusion I am initiating a Hold rating largely because I see no compelling case to think BTC will move up or down considerably in the near-term, which would trickle into more volatile reactions from the likes of MSTR and MST. In addition, a Buy rating on this security doesn't make sense for long-term investors. While the fund may declare long-term intentions, it seems to me the approach just doesn't allow for it.
