Could the BetaShares S&P 500 Yield Maximiser Fund (ASX: UMAX) be a good exchange-traded fund (ETF) for dividend income?
What is the UMAX ETF?
BetaShares says that the UMAX ETF aims to generate attractive quarterly income and reduce the volatility of portfolio returns by implementing an equity income investment strategy over a portfolio of stocks.
The businesses that it picks the positions from is the S&P 500, a group of 500 US businesses that are among the biggest and most profitable in America, and indeed the world.
UMAX ETF seeks to enhance dividend income through what is known as a ‘covered call’ strategy. These options are “generally written with terms of less than three months and strike prices that are approximately 2% to 5% above the then current level of the index.
BetaShares says that by writing these index call options, the UMAX ETF receives option premiums which are expected to provide an additional source of income and a partial hedge against a decline of the value of the portfolio.
It acknowledged that this options strategy is expected to underperform in a “strongly rising market”, as the options moderate the potential capital growth.
Having said all that, what are the more normal factors regarding the ETF?
Holdings and sector allocation
At the end of October 2021, the ETF said that these are the biggest exposures:
Microsoft (6.4%), Apple (6%), Amazon.com (3.7%), Tesla (2.3%), Alphabet (4.4%), Facebook/Meta Platforms (2%), Nvidia (1.6%), Berkshire Hathaway (1.4%) and JPMorgan Chase (1.3%).
In terms of the industries, it had these weightings: IT (27.9%), healthcare (13%), consumer discretionary (12.8%), financials (11.4%), communication services (10.8%), industrials (8%), consumer staples (5.6%), energy (2.9%), real estate (2.6%) and ‘other’ (5.1%).
Returns and income distribution
The BetaShares S&P 500 Yield Maximiser Fund says every quarter what its annual distribution return was. With the latest distribution, it said that its annual distribution return was 6.67%. That yield is quite a bit more than what the typical share market yield is.
Over the last five years, its average total return has been 11.3%, which compares to the S&P 500 Index return of 18.6% per annum over five years. It will be interesting to see how those respective returns look over the next three or five years.
Summary thoughts
UMAX ETF is an interesting idea for income, but I’m not sure if it would be better to have simply owned the S&P 500, like the iShares S&P 500 ETF (ASX: IVV). What will the future be? It’s hard to say without a crystal ball knowing what the returns will be.
