Investing in dividend-focused ETFs has become more popular as investors seek ways to generate income from their portfolios. One new fund that aims to deliver amplified dividends is the Pacer Metaurus Nasdaq-100 Dividend Multiplier 600 ETF (QSIX), launched by Pacer. This fund targets distributions equal to six times the dividend payouts on the Nasdaq-100 Index. Income strategies like these have seen significant growth in recent years, with covered call funds being a popular choice.
Covered call funds like Global X and JPMorgan’s Premium Income ETFs have attracted billions in assets, but they come with a drawback – a hard cap on the portfolio’s upside during market rallies. The Pacer funds, on the other hand, aim to capture more of the upside by using a combination of equity exposure and dividend futures contracts.
By mimicking the holdings of the underlying equity index and adjusting the ratio of equity exposure to dividend futures exposures annually, the Pacer funds hope to achieve their target distribution multiplier effectively. This strategy allows investors to avoid some of the sector and style risks associated with funds that focus solely on dividend-paying stocks.
Understanding the income details of these ETFs is crucial for investors, as the cash distributed is not created equal. The Pacer funds generate income from three separate areas – S & P 500 dividends on underlying holdings, capital gains from futures contracts, and return of capital. This breakdown can have different tax implications and impacts on the after-tax return for investors.
Overall, dividend futures offer a unique way for investors to potentially capitalize on expected dividend payouts from companies in the index. While there are risks involved, such as decreased value during times of economic stress, the potential for amplified dividends and enhanced total return make the Pacer funds an attractive option for income-focused investors.
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