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Income ETFs: JEPI vs NUSI, QYLD, RYLD — Each generates income using a covered-call strategy. They pay much more than traditional income funds, but are more volatile. If you’re running the right kind of plan, such volatility can be good. You have to know where the funds fit into your overall portfolio strategy.

Record your investing question at 303-747-4428.


This Episode In Article Form

Data as of 2/10/23

Note: The following is not a word-for-word transcript. For that, please see the episode on YouTube.

Ever since I launched my Income Sig plan in January 2022, I’ve received many questions about covered-call ETFs.

My plan uses QYLD, but there are other choices, including JEPI, NUSI, and RYLD. These four, in alphabetical order by symbol, are:

JEPI — JPMorgan Equity Premium Income
NUSI — Nationwide Nasdaq-100 Risk-Managed Income
QYLD — Global X NASDAQ 100 Covered Call
RYLD — Global X Russell 2000 Covered Call

Each generates income to be distributed to shareholders using a covered-call strategy.

This used to be a technique that could benefit only options traders, but these four ETFs and others like them now offer all investors access to this powerful income-producing method.

These funds write call options on the stocks they own. When they sell these options, they generate a profit. The buyer of the option pays a premium. This profit offsets declines in the assets owned by the ETF, which mitigates losses in falling markets. They can still decline, however, as I’ll cover.

The reason to use these ETFs is to generate income. To assess their relative income-generating power, let’s look at their yields, compared with a good general bond fund, iShares Core US Aggregate Bond (AGG):

12-Mo Yield Comparison (%)
– – – – – – – – – – – – – – –

11.5 JEPI
8.7 NUSI
12.8 QYLD
13.0 RYLD

2.3 AGG

The covered-call ETFs boast excellent yields, which is why one of them is in charge of providing regular monthly income payments in my Income Sig plan. That one is QYLD.

Let’s see just how much income these ETFs provide.

We’ll assume you invested $10,000 in each of them at the closing price on December 30, 2022, the last trading day of last year. Here’s how your portfolio would look, with share amounts rounded down to the nearest whole number:

$10,000 Invested at
12/30/22 Closing Prices
– – – – – – – – – – – – – – –

183 shares of JEPI @ 54.49
540 shares of NUSI @ 18.50
628 shares of QYLD @ 15.91
531 shares of RYLD @ 18.81

103 shares of AGG @ 96.99

The following is how much each fund paid per share on its most recent payment date:

Most Recent Amount
Paid Per Share ($)
– – – – – – – – – – – – – – –

0.4439 on 2/6/23 from JEPI
0.1239 on 1/27/23 from NUSI
0.1696 on 1/31/23 from QYLD
0.1956 on 1/31/23 from RYLD

0.2453 on 2/7/23 from AGG

Now, let’s see how much income each fund would have distributed to you on its most recent payment date.

To determine this, multiply the number of shares you own by the amount paid per share. Here’s how that went for our hypothetical portfolio of $10,000 invested in each fund at the end of December:

Most Recent Distributions
from Above Positions ($)
– – – – – – – – – – – – – – –

81.23 on 2/6/23 from JEPI
66.91 on 1/27/23 from NUSI
106.51 on 1/31/23 from QYLD
103.86 on 1/31/23 from RYLD

25.27 on 2/7/23 from AGG

It’s obvious in this comparison how much more income these covered-call ETFs deliver over their more traditional bond-fund peers.

The highest payer in the most recent round was QYLD. Its 106.51 was more than 4 times what AGG paid.

Keep in mind, this higher yield isn’t manna from heaven. There’s a cost, a literal one in the sense that these funds charge higher expense ratios than index funds charge, and they’re not as stable as bond funds.

They’re also nothing like bank accounts. Putting $10,000 into QYLD isn’t the same as parking it in a bank savings account paying 13% annual interest. There’s a lot of price change involved.

Before we get into that, consider the different expense ratios of these funds we’ve been considering:

Expense Ratios (Net %)
– – – – – – – – – – – – – – –

0.60 JEPI
0.68 NUSI
0.60 QYLD
0.81 RYLD

0.03 AGG

As ETFs go, these covered-call types are expensive. An investor in QYLD pays 20 times what an investor in AGG pays.

Of course, it’s been well worth it, considering QYLD’s high yield.

High expense ratios do raise the issue of whether it’s worth holding these covered-call ETFs. Investors who care most about expenses are long-term holders. Traders don’t give expenses much thought.

Even over a long term, however, the math of a higher yield more than compensating for a higher expense ratio works.

The bigger question is whether these funds are suitable as long-term holdings. On their own, probably not. In a plan that takes advantage of their price fluctuation, certainly.

For a look at why, consider their 2022 price change:

2022 Price Change (%)
– – – – – – – – – – – – – – –

-8.2 JEPI
-33.7 NUSI
-28.3 QYLD
-22.9 RYLD

-15.0 AGG

It was an unusual year, a bear market across both stocks and bonds that sent even AGG considerably lower. In most years, however, a general bond fund will fluctuate less than these covered-call ETFs.

JEPI’s relatively small decline in 2022 has investors gathering ’round, but be careful not to curve-fit to the last decline. JEPI is unlikely to pay as much as QYLD, for example, and depending on your way of using it the lower volatility might not be desirable.

JEPI is designed to be less volatile than the S&P 500. It’s an actively managed, defensive equity fund that also runs a covered-call operation. It’s supposed to move less than its index. It’s not doing anything wrong when it rises less and falls less than the S&P 500. It’s doing what’s written on its label.

As for my plans, they prefer price movement, i.e. volatility, in their growth and income funds, because they run quarterly rebalancing programs. In such a scheme, lower prices can be useful. In a year like 2022, when everything goes down, there’s minimal benefit. But most years aren’t like 2022, and anybody investing as if they are will learn this the hard way.

They already are. Year-to-date, JEPI’s price has risen only 0.5% compared with 6.8% for QYLD.

If you’re planning to park money in one of these covered-call ETFs for an extended period, and want to minimize volatility, then JEPI is a good choice.

For more aggressive income seekers or anybody running a systematic approach like my Income Sig plan, QYLD is a better choice. Its most recent distribution was 24% higher than JEPI’s most recent, and it grew the investor’s principal by a considerable 6.8% year-to-date compared with a half percent at JEPI.

Costs are a wash across these covered-call ETFs. All of them cost more than index funds, and much more than bond index funds, but they pay far more. Their extra income more than offsets their higher expense ratios.

If you really want to boost your income portfolio, I recommend my Income Sig plan. It’s more volatile than traditional income portfolios, but pays much more over time. Its key tactic is harvesting growth-fund surpluses as income, but that’s a topic for a different episode.


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Best 3x Leveraged ETFs

Best 3x Leveraged ETFs—TQQQ vs SOXL vs UPRO. All deliver plenty of volatility for traders, but one stands above the others for long-term performance coupled with short-term trading potential—and is perfect for my 9Sig and Income Sig plans.

Record your investing question at 310-734-8889.


This Episode In Article Form

Note: The following is not a word-for-word transcript. For that, please see the episode on YouTube.

Since The Kelly Letter launched its 9Sig plan six years ago using ProShares UltraPro QQQ (TQQQ) as its stock fund, the ETF has become the most popular 3x vehicle on the market.

According to the ETF Database, TQQQ’s daily average volume is more than 199 million shares. That’s more than the 81 million averaged by the SPDR S&P 500 Trust (SPY), which is the world’s largest ETF by assets, at $357 billion. TQQQ has only $14 billion. Its relatively low assets but enormous volume show that it’s a favorite among traders, not long-term investors.

The way I use it is a hybrid. It’s a key part of two of my long-term plans, one for growth and one for income. The plans abide by a set of rules based on the fund’s quarterly price change, trading it once per quarter depending on where its price went.

If TQQQ declined a lot, then 9Sig buys a lot. If it declined a little, 9Sig buys a little. It works similarly in the opposite direction. If TQQQ rose a lot, then 9Sig sells a lot. If it rose a little, 9Sig sells a little.

This process of reacting to price change works with all stock funds, not just leveraged ones. I use it on iShares Core S&P Small-Cap (IJR), which is a non-leveraged fund, and also on ProShares Ultra MidCap 400 (MVV), which is a 2x leveraged fund.

A question I receive frequently, and did again last week, is this: Would a broader-based 3x fund be safer than TQQQ?

This is in reference to TQQQ magnifying the daily price change of the Nasdaq 100 (NDX), an index that is heavy into technology stocks. Its top five components by weight are Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Google (GOOG and GOOGL), and NVIDIA (NVDA). Those five stocks alone comprise some 42% of the index. It’s easy to see why the Nasdaq 100 is considered a mega-tech proxy.

Therefore, reason some investors, it’s not as suitable for long time horizons as a broader-based index, such as the S&P 500, which is followed at 3x leverage by ProShares UltraPro S&P 500 (UPRO). Another group suggests that even more focus is needed to really crank up the volatility. For example, a 3x leveraged tech sector fund, such as Direxion Daily Semiconductor Bull 3x Shares (SOXL).

While both UPRO and SOXL would work in my 9Sig plan, TQQQ hits the performance sweet spot. Let’s go through why.

Plenty of Volatility

TQQQ provides plenty of volatility, but some diversification beyond tech, making it less vulnerable to a multi-year single-sector struggle. UPRO isn’t as volatile as TQQQ, making it less useful to a plan driven by higher highs and lower lows, which it exploits in the rules that automate selling and buying such conditions, respectively.

Here’s the price change of the three funds in 2022:

2022 Price Change (%)
– – – – – – – – – – – – – – –

-57.0 UPRO
-79.2 TQQQ
-85.8 SOXL

Some would glance at that and wonder why anybody would ever touch these funds, but if you run a plan that signals buying into such times, those minus signs are not warnings but invitations.

Before moving onto that, notice that all three provide plenty of downside for bargain hunting. Yes, SOXL dove deeper in 2022, but not much deeper than TQQQ and even UPRO went plenty deep enough for bargain hunting. You can see why any of these funds would work in a plan that craves volatility.

Onto why they are good for long-term plans. On top of delivering years like 2022 for packing the stock side of a plan, they deliver rising stretches like the following for harvesting profits:

2019 Through 2021
Price Change (%)
– – – – – – – – – – – – – – –

1,125 SOXL
798 TQQQ
339 UPRO

Now let’s take it all the way back to 2011, the first full calendar year in which all three funds operated. Here’s how they performed from there to the end of 2021:

2011 Through 2021
Price Change (%)
– – – – – – – – – – – – – – –

10,701 TQQQ
8,094 SOXL
2,576 UPRO

These are great tables to show your friends who insist on repeating the canard that leveraged funds don’t work over long time frames.

Try telling that to anybody who bought one of these at the end of 2010 and held it to the end of 2021. SPY’s price change over that time frame came nowhere close: 278%.

The three tables also show why my plans prefer TQQQ. It runs circles around UPRO in the long-term appreciation department, and outperforms SOXL as well. I would characterize it as the most evergreen of the big performers. When stocks head south, it provides a big enough bargain to recharge my 9Sig plan for the next recovery. Maybe not the biggest, but big enough—particularly when combined with its superb long-term return.

I would suggest that the worst choice of these three funds is UPRO. It doesn’t appreciate as much in most time frames, and when it goes through a bear market like the one of 2022, it falls enough to cause despair in anybody who is not comfortable with the way they’re using it. If it’s volatility your plan requires for top performance, then going with higher volatility makes sense.

If you can’t handle a -79% year, you probably can’t handle a -57% one either. A non-leveraged fund or even non-stock fund might be better.

For my 9Sig plan, I’ll stick with TQQQ.


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TQQQ and Volatility Decay

TQQQ and Volatility Decay—Surprise! TQQQ can do very well when simply bought and held over long time frames. But my 9Sig plan does even better with it by harnessing the high volatility.

Record your investing question at 310-734-8889.


This Episode In Article Form

Note: The following is not a word-for-word transcript. For that, please see the episode on YouTube.

Today’s question is one I receive on a regular basis, and was asked in various forms by several people in the past week.

Representing the group is Nathanael from Chicago, who asks about volatility decay in ProShares UltraPro QQQ (TQQQ), a triple-leveraged, i.e. 3x, fund that tracks the Nasdaq 100 stock index:

Discussion with a friend who joined the Sig System, about TQQQ. He’s been reading articles that arise in times like these that decry the foolishness of investing in funds like TQQQ, which warn about volatility decay.

But we don’t hold TQQQ, we trade it four times per year. Partially correct perspective?

1. Are we in fact holding TQQQ long-term because we’re always at least 60% invested in the ETF?

2. If so, why do you not see that as an issue for what we do?

3. What is volatility decay, and why is it not a concern for our plans? The article in question emphasizes this as a primary problem with holding TQQQ on a long-term basis.

This is a canard that won’t go away!

It’s become an evergreen attention-getter, with new articles warning about it every year.

I’m going to answer your three questions, Nathanael, but out of order to make a more coherent presentation for listeners who may not be as familiar with TQQQ and this issue more broadly.

I’ll go through the definition of volatility decay,

show that it’s not unique to leveraged funds,

reveal an easy way to see that it doesn’t preclude holding them even over fairly long time frames,

and explain how my plans go beyond holding TQQQ to taking advantage of its wide price swings.

Volatility decay, sometimes called performance decay, refers to the problem of leverage amplifying the moves in an index such that declines in a choppy pattern can grind it down to less than the performance of the index it’s tracking.

The math behind this is simple, and covered in my books. Consider, for instance, an index starting at 1000 then going through the following daily moves:


At the end of this five-day journey, it’s at 995 (rounded).

Now let’s run it through 3x leverage, assuming perfect tracking, so:


At the end of this five-day journey, the 3x tracking is at 982.

1x ended at 995
3x ended at 982

There’s your volatility decay. Mathematically it exists, and most articles warning against the dangers of holding TQQQ and other leveraged funds highlight the math to argue their point.

And, I should add, most do so as if they’re discovering it. They’re not.

This issue was been known since the first day a person borrowed money to buy something, which was, what, hundreds of years ago? It was certainly well understood by the time leveraged ETFs launched. And of course I knew about it and factored it into my research when devising my leveraged Signal plans.

But notice that it’s not unique to leverage.

Leverage merely magnifies, well, everything. The up and the down, and therefore the distances in between. In my earlier example, it would take the index only a 0.5% jump to regain break-even at 1000, but would take the 3x leveraged fund a 1.8% jump to get there.

So … good thing it has 3x leverage on its side, right?

It declines more deeply, but recovers more steeply.

In this example, when the index recovered 0.5% the 3x fund would recover 1.5%, putting it not so far from break-even: 997, requiring just another 0.3% flutter away from break-even at 1000.

Another angle on this that non-leverage also needs to recover more than it lost. This matters because critics of leverage say that it declines so far that it takes forever for it to recover, but the issue of performance decay in this regard is not unique to leverage.

In our earlier example, any decline in the index requires a bigger gain to regain break-even. If the index declines 10% from 1000, it must then appreciate 11.1% to regain break-even. Bigger examples make this more clear. A 50% decline requires a 100% recovery to regain break-even.

Note that even mortgages introduce “volatility decay.”

If you put down $200k on a $1m home, then the home declines 30%, on paper you’ve lost all your equity and then some. Because of leverage, you lost more than you invested, to the tune of a 150% loss rather than a 100%.

Note that this cannot happen in a leveraged ETF. Your loss is limited to the full amount of your investment, making leveraged funds one of the safer ways to put leverage to work.

Back to your unfortunate real-estate investment.

You now owe $1m on a $700k home, so even if you sell it you won’t recoup your down payment and will still owe the bank $100k. That’s called being underwater.

To regain break-even on this home, you would need it to rise not 30% but 43%. There’s your volatility decay in the housing market.

Pause here to ask yourself: If holding a leveraged investment over the long term is so dangerous, then why does real-estate financed with 30-year mortgages work? Because the housing market rises over time, but guess what? So does the stock market.

Which leads to my next point: Even buying and holding TQQQ has worked over long time frames.

{ Transition Music }

You don’t even need mathematical explanations to see this. Just pull up a long-term chart of TQQQ. I’ll do so now…

From the end of 2010 to the end of 2020, TQQQ rose nearly 6,000%.

What more proof do you need that leverage can work over long time frames?

Whenever I point to a time frame like this one, a critic says, “Well, you cherry-picked a good one. But on the forever time line they don’t work.”

But we’re not examining forever, which is a tough time frame to encapsulate. We’re looking at whether leveraged funds can work when held over long time frames. The answer is clearly: yes.

A decade’s not forever, but it counts as “long” in most people’s book, and 2010 to 2020 was a decade that included all the usual volatility and many TQQQ crashes along the way, such as:

-44% in the debt ceiling brinkmanship of 2011
(but then rising 130% in the next 7.5 months)

-41% from July 2015 to February 2016
(but then rising 73% in the next 7.5 months)

-27% from January to April 2018
(but then rising 63% in the next 5 months)

-55% in the autumn tech-wreck of 2018
(but then rising 129% in the next 11 months)

-69% in the February to March 2020 covid crash
(but then rising 344% in the next 5 months)

And so on. This decade was not cherry-picked for its smooth upward line. There are no smooth upward lines. There’s a generally rising line, which everybody conveniently forgets in downswings, but it’s there.

Stocks fluctuate along that generally rising line, and leveraged funds magnify those fluctuations. Yes, they enter bigger setbacks than the indexes they track, but they then recover at faster speeds to, ultimately, higher highs.

Even over this volatile decade noisy with warnings from bears on everything from federal debt threatening the dollar’s reserve currency status, to the debt ceiling, to the taper tantrum, to the election of Donald Trump, to Brexit, to valuation concerns, and just the usual mental detritus of headline obsessers.

For example, the news in March 2020 was grim for stock investors.

MarketWatch ran an opinion piece warning about a “watershed” moment for stocks if they couldn’t home some pet level of the author’s.

Joseph Calhoun at Alhambra Investments titled a report, “Is this the Beginning of a Recession?” He opened with:

“As I sit here Monday evening with the Dow having closed down 2000 points and the 10-year Treasury yield around 0.5%, the title of this update seems utterly ridiculous. With the new coronavirus still spreading and a collapse in oil prices threatening the entire shale oil industry, recession is now the expected outcome. Most observers seem to question only the potential length and depth of the coming downturn. … if we get sufficient evidence to call a recession, we will do more selling.”

Nice. Talk of selling, and plans to sell, as prices careen downward.

My plans do the opposite: perk up and buy into low prices, then perk up and sell into high ones.

Finally, none other than the New York Times ran a report, “Dow Skids Into Bear Market, Heralding an Uncertain Future,” which opened thusly:

“The 11-year bull market, which grew in tandem with one of the longest economic expansions in United States history, weathered a European debt crisis and survived President Trump’s trade war with China, is dead… Falling share prices have incinerated $5 trillion in stock market wealth in less than a month.”

Five months later, TQQQ had risen more than 300%.

{ Transition Music }

Finally, although leveraged ETFs can work when held over long time frames, despite warnings of volatility decay, they work best with a plan that puts their heightened volatility to work. That’s what my Sig plans do.

The 9Sig plan buys the lower lows of TQQQ, and sells the higher highs, on a quarterly basis.

This same process works on non-leveraged funds or lesser-leveraged funds, and indeed I offer one of each of those, 3Sig and 6Sig, respectively, but it works even better with the 3x leverage of TQQQ and the high volatility of the Nasdaq 100 index.

It’s not for anybody unwilling to go through big swings, but for those who are, and confident in the generally rising line, the 9Sig approach is a winner.

Nathanael, you asked if the fact that the 9Sig plan never allocates less than 60% of its account to TQQQ makes the plan a buy-and-hold approach.

First, the plan can allocate less than 60% of its balance to TQQQ. If the fund rises enough, the plan will signal selling more and more, without a mechanism to prevent it from selling to less than a 60% allocation.

I know why you flagged 60%, because that’s what we reset back to from time to time, such as after a 30 down period in which we skip two quarterly sell signals to stay invested for a recovery, like we’re in now. However, there’s no rule saying the plan can’t allocate less than 60% to TQQQ.

Second, no, it’s not a buy-and-hold plan. It’s a quarterly price reaction plan that tends to keep most of its balance in the stock fund. All long-term plans must do so or they’ll lose to the S&P 500 because … stocks generally go up. Remember that long-term, rising line.

Our buys and sells of TQQQ are not perfectly timed, but nothing is. They take the correct action each quarter in light of that quarter’s price change. That’s all, but that’s enough.

When TQQQ goes up a little, we sell a little. When it goes up a lot, we sell a lot. When it goes down a little, we buy a little. When it goes down a lot, we buy a lot.

We can, and have, run out of buying power, and in such time frames the plan is indistinguishable from a buy-and-hold plan, but it eventually exits that posture and starts reacting to quarterly price changes again. Its time frames that look like buy-and-hold are begun at prices well below the fund’s last cycle price peak because of the quarterly signal purchases that precede an all-in allocation.

It’s not a perfect approach, but it’s one that beats the market over time, and it’s a superb way to harness the wide fluctuation of TQQQ.

On a closing note, don’t get scared by fancy sounding language around leveraged ETFs. There’s nothing complicated going on. They simply amplify the daily moves of an index, which works in most time frames even on a buy-and-hold basis, but works splendidly in a plan that buys their extra low prices and sells their extra high ones.

I read in one report warning against volatility decay, the following: “[Leveraged vehicles] are designed for short term directional bets as the returns are path-dependent. They should not be held long term.”

This is good for a few laughs.

First, what investment returns are not path-dependent? Whatever you own, it will produce profit or loss depending on the path of something. This is not unique to leveraged funds.

Second, short-term bets are a waste of time. Nothing works to reliably call the market in the short term, not sentiment, moving averages, valuation, nothing. Seriously, nothing. So if leveraged funds are only good for a useless activity, then they’re useless, but our experience proves they’re not.

Third, it’s easy to see on a chart that leveraged ETFs can do fine over a long term, such as the decade I examined earlier in this episode.

It’s easy for analysts and marketers to create fear around the wild swings of leveraged ETFs, but if you understand them, know what you’re signing up for, and use those swings properly, you can profit handsomely.


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Please subscribe here.

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The Debt Ceiling

The Debt Ceiling—why do we have it, why do we hit it, why do politicians fight about it, what happens if they don’t raise it?

Record your investing question at 310-734-8889.


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More Subscriber Questions About the Current Stock Market

NEIL from Central Illinois asks how much recovery we need to regain our 9Sig plan’s year-end 2021 balance. He wonders if a full recovery of the Nasdaq 100 to its long-term trajectory is a reasonable possibility.

NICK from Denver wants to know if it makes sense to move his Income Sig plan’s AGG balance into TQQQ at today’s depressed price. He’s also grateful for this plan that will enable him to retire early. Great!

DOUG from New Westminster, British Columbia is trying to decide between the money market and bond market for his uninvested money.

MICHELE from Cape Cod, Massachusetts has a brother who is worried that the dollar will crash on high federal debt and take down Wall Street and the US economy with it. Is this time different for this recurring macro concern?

KENT from Old Lyme, Connecticut reminds everybody that the key is controlling emotions and going with historical averages—hear, hear!

Sources Mentioned:

US Department of the Treasury. Fiscal Service, Federal Debt: Total Public Debt [GFDEBTN], retrieved from FRED, Federal Reserve Bank of St. Louis

The US Dollar as the World’s Dominant Reserve Currency, 15 Sep 2022, Congressional Research Service, PDF

China’s debt ratio hits record high at 3 times GDP, 7 Dec 2022, Nikkei Asia, article


If you’re not a Kelly Letter subscriber, why not? I’d like to welcome you!

Please subscribe here.

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