Summary Yieldmax MSTR Option Income Strategy ETF offers investors exposure to an actively managed options strategy focused primarily on MicroStrategy. MSTY has generally performed in line with MSTR shares, though shareholder upside is capped due to the call strategy of the fund. The distribution rate is enormous at 84.2%. Though, income investors seeking stable returns over time should likely steer clear of this Bitcoin-adjacent derivative play. In a recent article for Seeking Alpha, I covered the YieldMax Universe Fund of Option Income ETFs ( YMAX ). One of the reasons why I wanted to weigh in on that fund was because of its place in the Top 25 new ETFs of 2024 so far by flow. This is the table below showing the rest of that list: ETF Popularity (Nate Geraci via X) The fact that so many of the top funds by YTD flow are crypto-themed products should not be lost on investors. Interestingly, YMAX is not the most successful fund that YieldMax has brought to market this year; that honor goes to the Yieldmax MSTR Option Income Strategy ETF ( MSTY ). In this article, we'll get into the fund details for MSTY, the performance for the shares so far, and assess whether or not the shares are suitable for income investors. Fund Details Similar to the overwhelming majority of funds offered by YieldMax, MSTY is a single-stock option income fund. As astute readers have probably already deduced, MSTY generates income exclusively from selling options in MicroStrategy ( MSTR ) shares. I've covered MicroStrategy for Seeking Alpha in the past. For those interested in my views on the company itself, I liked MSTR quite a bit in December , and I was a bit less inclined to buy them more recently in July . But my fundamental view of MSTR matters less than the objective and performance of MSTY. Fund Info MSTY Gross Expense Ratio 0.99% AUM $592m Distribution Rate 84.2% Inception 2/21/24 Source: YieldMax, as of 10/4/24 The objective of the fund is to generate income for shareholders. As an actively managed fund, capital is never directly invested in MSTR shares. Rather, income is generated from writing calls. Thus, the 1% annual fee is higher than what a more passive ETF might cost shareholders. The options strategy utilizes call writing, which caps potential gains if shares of MSTR rally significantly. It's a fairly straightforward fund, in my opinion. The question is: Does the strategy work? Performance In my view, finding the right benchmark from which to judge MSTY is a bit tricky. On one hand, it's advertised as an income product and should theoretically be compared to other income ETFs. On the other hand, MSTY is essentially a derivative of MSTR, which itself is a derivative of Bitcoin ( BTC-USD ), and should probably be judged more similarly to crypto-themed investment products. Personally, I'm choosing the latter: Data by YCharts In the chart above, we're looking at MSTY against MSTR, the Fidelity Wise Origin Bitcoin ETF ( FBTC ), and the Volatility Shares 2x Bitcoin Strategy ETF ( BITX ) since the inception of MSTY. At a 114% total return, anyone who has held MSTY since the day the product launched has done quite well. While the fund is behind MSTR shares, MSTY is beating both FBTC and BITX from a total return standpoint. Now, it's important to keep in mind that a significant portion of that total return has come from distributions: Data by YCharts For instance, if a MSTY shareholder purchased the fund on Day 1 at $20.60 per share, that shareholder has a little over $6 in paper gains and $15.80 in distributions through September payout. This buyer is just a few months from house money territory, assuming payouts remain in the $1.50 to $2 range. But what if, rather than buying the late-February launch, the MSTY shareholder instead bought in March at the share price highs for MSTR and MSTY? Data by YCharts This is where things get interesting because MSTY has provided a total return of just 5.7% since March 28th. Admittedly, MSTY has performed better than MSTR, FBTC, and BITX over that period of time. What if we change our barometer to the August 5th lows in MSTR? Data by YCharts Again, we see MSTY holding up very well relative to FBTC and BITX, but slightly behind MSTR when buying from short-term price lows in MSTR. Of course, there is another possible scenario that prospective MSTY shareholders should be mindful of, and that's allocating a position just as MSTR starts going down. Consider the total return from the late-March highs to the May lows: Data by YCharts Here we see MSTY holds up better than MSTR, but even with the fund's distributions in April, MSTY shareholders still see a 30% negative total return in a matter of just a few weeks. I suspect such a large draw-down is a non-starter for most income investors. Thus, timing the entry and exit of the MSTY fund is just as important as timing long positions in MSTR. Risks So far, I think it is fair to say MSTY generally performs with MSTR in both directions, but with less upside when MSTR is in a price move higher and slightly less pain to the downside when MSTR is moving lower. From where I sit, MSTY behaves far more like a risky crypto-themed equity than an income product. The fund has only been available in the market for a few months. Because of that, I'm hesitant to call the product a 'sell' outright, due to the possibility that it could theoretically outperform MSTR over time. I'm not sure that's the most likely outcome, personally, but I'll concede that it's possible. I suspect the fund will under-perform MSTR over the long haul due to the capped upside from the fund's call writing strategy. Final Takeaways MSTY is an odd product. I don't personally think it's suitable for income investors seeking stable returns. Similar products from YieldMax that cover other stocks have shown that the long-term trend in distributions is downward. Despite the popularity of the fund as one of the top new ETFs in 2024, I suspect the best returns have already been made for those who bought fund shares shortly after it launched. To be fair, MSTY is likely a safer product than leveraged ETFs like BITX, in my view. But I keep coming back to shareholder objectives and expectations. Longer term, I think income investors will be able to sleep much better at night through exposure to more predictable returns. For me, there isn't much of a reason to buy a synthetic long option strategy fund that under-performs the stock to the upside and still declines when the underlying goes down. Thus, I view MSTY as a risky derivative masquerading as an income ETF.
