The Global X Russell 2000 Covered Call ETF (RYLD) has become one of the most popular small-cap-focused active fund. It has accumulated over $1.4 billion, with $35 million of these funds coming this year. So, is the RYLD  a better alternative to other popular Russell 2000 funds like the IWM?

What is the RYLD ETF?

Active funds have become the fastest-growing industries in the financial services industry in the past few years. 

The JPMorgan Equity Premium Income ETF (JEPI) has accumulated over $36 billion in assets in the last three years. Similarly, the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) has over $16 billion.

The Global X Russell 2000 Covered Call ETF aims to replicate the success of JEPI and JEPQ while targeting the Russell 2000 index.

Russell is a highly popular index that tracks 2,000 small and mid-cap companies in the United States. Some of the biggest companies in the fund are Shockwave Medical, Novavax, Crocs, and Roku.

The RYLD ETF aims to benefit from the Russell 2000 index while generating income using options. 

Its approach is fairly simple. First, the asset manager invests about 80% of its total funds in components of the Cboe Russell 2000 BuyWrite Index. In this case, its biggest component is the Global X Russell 2000 ETF, Novartis, Inhibrx, and Cartesian. 

Second, the fund then sells call options on the Russell 2000 index, and receives the premium, which it distributes to its investors as dividends. A call option is a derivative that gives investors the right to buy an asset at a strike price.

This trade has a big implication on how the RYLD ETF works. Ideally, the fund makes money when the Russell 2000 index is rising. 

When the index falls, the call element becomes invalid since one can buy it at a cheaper price. If the index rises, the fund benefits because of the right to buy at the cheaper price. 

The challenge, however, is when the index rallies sharply within the holding period. Potential gains are usually capped up to the strike price level.

Is the RYLD ETF a good investment?

In my last articles, I have demonstrated that while active funds like JEPI and JEPQ offer some of the highest dividends in Wall Street, their total returns often lag behind the S&P 500 and Nasdaq 100 indices.

The same is true with other popular single stock ETFs like TSLY and NVDY, which use the call option approach to invest in Tesla and Nvidia.

To measure the RYLD’s performance, the best approach is to compare it with the iShares Russell 2000 ETF (IWM), which tracks the Russell 2000 index. It has over $68 billion in assets and tracks the biggest small and mid cap companies. 

The biggest components in the Russell 2000 index are FTAI Aviation, Vaxcyte, Insmed, Sprouts Farmers Markt, and Applied Industrial Technologies. Its biggest industries are health care, financials, and industrials. The fund has an expense ratio of 0.19% and a dividend yield of 1.17%.

RYLD’s dividend yield is 12.3%, making it one of the best yielders. However, for an investment, the best approach is to look at the total return, which is calculated by adding the stock return and the dividend.

RYLD’s total return this year so far has been 5% while the IWM fund has returned 9.28%. The SPY fund has returned 20%. 

The same trend has happened in the last three years as the RYLD has dropped by 8.7% while the IWM fund rose by 1.46%. Also, the SPY fund has jumped by over 35% in the same period. RYLD has an expense ratio of 0.60%, meaning that holders are paying to underperform.

Historically, small cap stocks have underperformed their bigger peers like Amazon, Alphabet, Apple, and Nvidia. Therefore, as multiple studies have shown, it makes sense to invest in simple passive funds instead of the so-called boomer candy ETFs.

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The Indian stock market is expected to open lower on Tuesday as the global markets faced significant sell-offs.

The domestic equity benchmarks, Sensex and Nifty 50, will likely see losses, following the trend from Asian and US markets.

Technology stocks took a hit globally, while traders revised their expectations regarding future interest-rate cuts by the US Federal Reserve, impacting investor sentiment.

Global market sell-off weighs on Indian stocks

US and Asian markets experienced sharp declines, with US tech stocks leading the losses.

The Dow Jones Industrial Average plunged by 398.51 points, while the Nasdaq dropped 1.18%.

These declines come on the heels of a strong US jobs report, which diminished the likelihood of another super-sized rate cut by the US Fed.

Investors now anticipate a 25-basis-point rate cut, with only a 14% chance that the Fed will not cut rates at all, according to CME’s FedWatch tool.

Asian markets also mirrored the US market losses, with Japan’s Nikkei 225 declining by 0.75%, and South Korea’s Kospi dropping by 0.61%.

In contrast, Chinese markets jumped 10% after reopening from a long holiday. Hong Kong’s Hang Seng Index, however, declined by more than 3%.

FII outflows and rising crude oil prices impact Indian markets

On Monday, the Indian stock market faced its sixth consecutive session of losses, with the Sensex plunging by 638.45 points to close at 81,050.00, and the Nifty 50 settling 218.85 points lower at 24,795.75.

The sharp fall in Indian equities can be attributed to a significant outflow of ₹30,700 crore by foreign institutional investors (FIIs) over the first three days of October, coupled with rising crude oil prices.

Siddhartha Khemka, Head of Research at Motilal Oswal Financial Services, noted that the recent FII outflows, alongside rising crude oil prices, have created negative sentiment in the market.

Khemka added that the focus this week will be on the Reserve Bank of India’s (RBI) monetary policy outcome and the start of the Q2 FY25 earnings season, which will influence market direction in the coming sessions.

Key indicators and earnings reports to guide market outlook

Looking forward, analysts suggest that the RBI’s upcoming policy decision will be pivotal in determining the near-term trajectory of the Indian stock market.

Markets are closely watching whether the central bank will maintain its current stance or provide new signals on interest rate cuts.

Additionally, the start of the Q2 FY25 earnings season will provide insight into corporate performance, particularly in light of the challenges posed by rising inflation, volatile global markets, and sustained FII outflows.

The RBI is expected to announce its monetary policy decision on Friday.

While no major changes are anticipated, analysts will focus on the central bank’s forward guidance and its outlook on inflation and growth.

Tech stocks under pressure, FIIs continue selling spree

The selling pressure in global markets, particularly in tech stocks, has had a ripple effect on Indian equities.

Key US tech giants like Alphabet, Apple, and Amazon saw declines, dragging global indices lower.

In India, technology stocks could also face headwinds in the short term due to this global sentiment.

Additionally, persistent selling by FIIs remains a key concern for Indian markets, with over ₹30,700 crore of outflows witnessed in the first three days of October.

Despite these challenges, some sectors in the Indian market, particularly financials and infrastructure, may offer resilience as the government’s continued focus on infrastructure spending and the potential for stronger-than-expected Q2 earnings may support select stocks.

Oil prices and US Treasury yields add to market uncertainty

Brent crude prices fell by 0.3% to $80.70 per barrel, while US West Texas Intermediate (WTI) futures dropped to $76.94 per barrel after Monday’s rally. This decline in oil prices follows a recent spike, which had exacerbated concerns about rising costs for Indian businesses.

In addition to oil prices, US Treasury yields are also influencing global markets.

The benchmark 10-year US Treasury yield surged past 4%, reaching 4.019%, as expectations for further rate cuts diminished. This rise in yields has added to the risk-off sentiment in equity markets globally, including in India.

As the Indian stock market faces another potential day of declines, all eyes will be on the RBI’s monetary policy decision later this week and the start of the Q2 earnings season.

Global factors, including the US Fed’s stance on interest rates, oil prices, and continued FII outflows, will continue to shape the market sentiment in the near term.

Investors will be looking for signs of stabilization as Indian markets remain volatile amid global uncertainties.

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The YieldMax TSLA Option Income Strategy (TSLY) and the YieldMax NVDA Option Income Strategy ETFs (NVDY) will be in the spotlight in the past few weeks as the companies publish their financial results and as Tesla unveils its robotaxis.

The TSLY ETF has dropped by almost 50% this year and over 55% in the last twelve months. On the other hand, the NVDY fund has risen by 10% in 2024 and by 13% in the last 12 months,

These boomer candy ETFs have underperformed their parent companies. TSLY’s total return in the last 52 weeks was minus 14.2% compared to Tesla’s 7.2%. Similarly, NVDY has jumped by 115%, while the Nvidia stock has risen by 182%.

What are the TSLY and NVDY ETFs?

The YieldMax TSLA Option Income Strategy and YieldMax NVDA Option Income Strategy ETFs are some of the biggest active funds in the US. 

The TSLY ETF aims to generate income by investing in synthetic assets that track Tesla shares and selling call options on the stock.

A call option is a financial derivative that gives a right and not an obligation to buy an asset. If the stock is trading at $100 and falls to $90, the call option becomes invalid since you can easily buy it at a cheaper price. 

If the stock stays in a tight range in the holding period, you benefit from the call option premium. On the other hand, if the stock rises, you benefit from the movement and the premium. However, if it zooms past the strike price, you miss out on the strong rally. 

NVDY and other ETFs in the family like those tracking Coinbase, Apple, Meta Platforms, Netflix, and PayPal work similarly.

Tesla earnings and robotaxi event

The TSLA and TSLY ETFs will next react to the upcoming robotaxi event scheduled on Thursday this week.

This is an important event because Tesla is betting on it to deliver exceptional returns for its shareholders. In the last earnings call, the company estimated that the robotaxi would be worth over $5 trillion in the long term.

The Robotaxi product will use Tesla’s self-driving capabilities to ensure that users can make money by turning their vehicles into taxis. In the long term, it hopes to disrupt Uber and Lyft, especially in the United States. 

Therefore, the stock will likely have volatility ahead of and after the robotaxi event. 

The next important catalyst for the TSLY ETF will be the upcoming Tesla earnings, scheduled on October 23rd. 

These earnings will provide more color about the company’s revenue and profitability growth. Data released last week showed that Tesla produced 469,796 vehicles in the second quarter after producing 469,796. These production numbers were relatively better than expected.

Tesla’s earnings are expected to show that revenues rose by 14.30% in the second quarter to $25.26 billion. Its 2025 revenue is expected to come in at over $98.8 billion, higher than the $96.7 billion it made last year.

The key driver for Tesla’s stock will be its guidance on its next-generation $25,000 EV, which  is expected to be launched in 2025.

The challenge for the TSLA and TSLY stock is that it was trading at $240, higher than the analysts average of $208.

Nvidia’s AI growth concerns

Nvidia and the NVDY ETF will also be in the spotlight as several companies in the AI industry publish their financial results. Nvidia’s next earnings will come out in November 27th. 

The most notable companies that will impact Nvidia’s stock are firms like Microsoft, Amazon, and Alphabet, which are some of its biggest customers. 

The other notable names are companies are semiconductor firms like Taiwan Semiconductor, ASML, AMD, and Intel. These firms will provide more colour about the state of AI spending and whether it was growing. 

Still, the key concern about Nvidia is that its growth could start to slow. Analysts expect the results to show that Nvidia’s revenue rose to over $32.86 billion in the third quarter, a big increase from the $18.2 billion it made in the same period last year. 

Nvidia’s earnings per share (EPS) is expected to rise from 37 cents last year to 74 cents. For the year, Nvidia’s revenue is expected to grow by 125% to $125 billion followed by $178 billion in 2025. 

On the positive side, the NVDY ETF has remained above the 50-day and 200-day moving averages, meaning that bulls are in control, and that the fund will retest the year-to-date high of $26.

Are NVDY and TSLY good investments?

Altogether, historical data shows that investing in Nvidia and Tesla is the better option compared to these active funds. For one, NVDY and TSLY have a high expense ratio of 1.01%, meaning that a $10,000 investment will cost you $101 excluding of taxes. Their historical performance are weaker than investing in the real stocks.

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After a strong start, with shares surging over 10% following the Golden Week holiday, Chinese stocks reversed course as the much-anticipated news conference failed to deliver substantial details about boosting the country’s sluggish economy.

In a session marked by volatility, the Shanghai Composite Index in mainland China climbed about 5% by late morning, while Hong Kong’s Hang Seng Index tumbled 5%, reflecting a split in investor sentiment.

Unmet expectations from China’s economic planners

Market participants had eagerly awaited further insights into the Chinese government’s plans to reignite economic growth.

However, the National Development and Reform Commission (NDRC) offered little clarity.

NDRC Chairman Zheng Shanjie attempted to strike a confident tone, asserting that China will achieve its economic and social targets for the year.

However, he acknowledged mounting pressures, stating, “The downward pressures on China’s economy are also increasing.”

Zheng also confirmed plans to allocate 200 billion yuan ($28bn; £21.5bn) for spending and investment projects by the year’s end.

Despite the announcement, investors were left disappointed by the absence of a more robust fiscal stimulus package.

Market reaction to stimulus shortfall

“The market really expected more,” said Alicia Garcia-Herrero, chief economist for the Asia Pacific region at Natixis.

“The correction will be even stronger if the data on the Golden Week in terms of consumption is weak,” she added, emphasizing the market’s reaction to the perceived lack of tangible measures.

Garcia-Herrero also critiqued the government’s timing, stating, “I would not have organized a press conference not to announce anything new.”

Growing concerns over China’s economic trajectory

China’s leadership has been under pressure to revive confidence in the world’s second-largest economy as fears mount that the country might fall short of its 5% annual growth target.

In recent months, authorities have unveiled a range of measures aimed at shoring up the economy, including support for the embattled property sector, stock market interventions, direct financial aid to low-income households, and increased government spending.

However, some economists remain skeptical about whether these moves will be sufficient to tackle the deep-rooted issues facing China’s economy.

Many argue that the country needs broader structural reforms to achieve sustainable, long-term growth.

China’s economic expansion has been decelerating, weighed down by a struggling real estate market, deflationary trends, and other significant challenges.

While the government’s stimulus efforts signal a commitment to addressing these concerns, the lack of clear and decisive action has left many investors cautious about the future trajectory of the economy.

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Indian equity benchmarks were slightly higher on Tuesday, tracking gains in Chinese stocks. 

At the time of writing, the BSE Sensex was up 0.6% at 81,502.37, while Nifty50 was also 0.6% higher at 24,949.60. 

“Looking ahead, several important data releases and events could influence market direction. Investors will be closely monitoring developments in the geopolitical situation and its impact on crude prices,” The Times of India quoted Ajit Mishra, SVP, research at Religare Broking. 

Asian markets dip, China outperform

Most Asian markets fell on Tuesday, tracking overnight losses in Wall Street. 

Asian technology stocks saw the biggest losses on Tuesday, tracking overnight weakness in their US peers amid some regulatory jitters and negative analyst comments, Investing.com said in a report. 

Meanwhile, China’s Shanghai Shenzhen CSI 300 and Shanghai Composite rose around 6-8% after opening nearly 13% higher on Tuesday. 

Trade resumed after the Golden Week holiday on Tuesday as sentiments were supported by a slew of major stimulus measures announced by Beijing recently. 

Investing.com said:

But investors were still watching for more stimulus measures in the country, especially targeted fiscal measures. 

Tata Motors shares drop on muted sales

Shares of Tata Motors dropped today as the company’s Jaguar Land Rover segment’s retail sales were muted during July-August. 

Retail sales of Tata Motors-owned Jaguar Land Rover dipped 3% during the September quarter as compared to the year-ago period. 

Additionally, the Indian operations of Tata Motors are experiencing a slowdown in local demand, which weighed on sentiments as well. 

Shares of Tata Motors were down 1.7% at 912.85 on Tuesday. 

Metal stocks decline as iron ore prices slip

Shares of metal companies declined on Tuesday as a sharp fall in SGX iron ore prices weighed on manufacturers of the steel-making material. 

Also, China’s state planner announced a roadmap to boost its economy, but lacked new fiscal stimulus measures, which dented hopes of investors.

This weighed on metals stocks too as China is the top consumer of base metals. 

Shares of NMDC, NALCO, JSW Steel and Tata Steel were down around 1-4% on Tuesday. This also dragged down the Nifty Metal index over 2% lower. 

Other metal stocks such as Hindalco, Vedanta and Jindal Steel also fell. 

Nifty Bank rebounds 1%

The Nifty Bank index rebounded 1% on Tuesday, snapping a six-day losing streak. 

Shares of HDFC Bank rose 1.8% on Tuesday, while ICICI Bank gained 0.4%. Axis Bank’s stock rose over 1.5% as well.

SBI shares also rose nearly 1%. 

Nifty Infra index also gained on Tuesday, after declining for the past five sessions. 

Shares of hotel companies and Tata Power rose, which aided the performance of the Nifty Infra index. 

RVNL, M&M and Bharat Electronic among major gainers

Shares of Rail Vikas Nigam Limited rose more than 4% on Tuesday. Bharat Electronics’ stock also gained nearly 3% on Tuesday and was among the top gainers. 

Meanwhile, shares of Suzlon Energy also rose 1.3%, while those of Trent jumped more than 3.5%. 

Shares of Mahindra and Mahindra surged more than 2.3% on Tuesday after CLSA upgraded the counter to ‘outperform’ from ‘sell’ and raised the price target as it sees multiple growth triggers for the auto major, Moneycontrol said in a report. 

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