The 3 Must-Watch ETFs Riding the Market Rebound
AInvestTuesday, Aug 6, 2024 4:52 pm ET
2min read
EV --
QHY --
VTI --

As stocks rebounded broadly after a significant downturn, investors are looking for opportunities to capitalize on the market's recovery while also seeking steady income. This week, we highlight three ETFs that have caught our attention for their unique approaches to balancing growth potential with income generation.

1. WisdomTree US Quality Dividend Growth Fund (DGRW)

DGRW stands out as a compelling choice for investors looking to blend dividend income with growth potential. Unlike many dividend-focused ETFs that lack exposure to high-growth sectors, DGRW offers a significant allocation to the technology sector, which has been a key driver of market gains.

Key features of DGRW:

  • Outperformed alternatives like VTI, SCHD, and VYM over a 10-year period

  • Low expense ratio of 0.28%

  • Monthly distributions, albeit with a modest yield of 1.5%

  • Strong exposure to the tech sector (28% of holdings)

  • While the current yield may seem low, DGRW's strategy of reinvesting in growth-oriented dividend payers has led to impressive dividend income growth over time. For investors with a long-term horizon, DGRW offers a balanced approach to capturing both capital appreciation and increasing dividend income.

    2. Neos Nasdaq-100 High Income ETF (QQQI)

    QQQI is a newcomer in the options-income ETF space, offering exposure to the Nasdaq-100 Index combined with a flexible call option strategy. This approach aims to generate high income while still participating in potential market upside.

    Highlights of QQQI:

  • Recently launched but has already gathered over $330 million in assets

  • Uses a data-driven approach to writing call options

  • Delivers a compelling 14.5% annualized distribution yield

  • Total returns of 12.5% since inception, capturing 74% of the Nasdaq-100's returns

  • QQQI's strategy of writing both in-the-money and out-of-the-money call options on varying notional exposures provides flexibility that can be particularly valuable after market declines. For investors seeking high income from a growth-oriented portfolio, QQQI presents an intriguing option.

    3. Rex FANG & Innovation Equity Premium Income ETF (FEPI)

    FEPI takes a concentrated approach, focusing on just 15 top technology stocks, including the FANG+ names, and employing a covered call strategy to generate substantial income.

    Key aspects of FEPI:

  • Highly concentrated in the technology sector

  • Utilizes a covered call overlay strategy writing slightly out-of-the-money options

  • Impressive 17.4% trailing twelve-month yield

  • Targets a 25.20% distribution rate

  • While FEPI's concentration in technology stocks presents higher risk compared to more diversified funds, it also offers the potential for significant income. The fund's strategy of writing slightly out-of-the-money calls allows for some upside participation if tech stocks continue to rally.

    Conclusion

    These three ETFs - DGRW, QQQI, and FEPI - represent different approaches to balancing growth and income in the current market environment. DGRW offers a more conservative approach with its focus on quality dividend growers, while QQQI and FEPI employ options strategies to generate high levels of income from growth-oriented portfolios.

    Investors should carefully consider their risk tolerance and income needs when evaluating these options. While the high yields of QQQI and FEPI may be attractive, they come with increased risk due to their use of options and, in FEPI's case, high concentration in the tech sector. DGRW, on the other hand, offers a more balanced approach that may be suitable for investors with a longer-term perspective.

    As always, it's crucial to conduct thorough due diligence and consider how these ETFs fit into your overall investment strategy before making any investment decisions.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.