Why WPAY is a Flawed Income Strategy for Long-Term Investors

The Roundhill WeeklyPay Universe ETF (WPAY) has attracted attention as a vehicle for generating regular income through its leveraged total return swap (TRS) structure. By promising 1.2x exposure to the weekly total return of its underlying stocks, it appears to offer an innovative approach to dividend capture and capital appreciation. Yet, beneath this veneer of sophistication lies a structural framework riddled with inefficiencies and risks that render it unsuitable for long-term investors.

Structural Inefficiencies: The Volatility Drag

Leveraged ETFs like WPAY rely on derivatives such as TRS to amplify returns. According to the fund's prospectus, approximately 80% of its assets are allocated to TRS, with 20% directly invested in the underlying stocks and 10% held in treasuries as collateral. This structure inherently introduces leverage, which magnifies both gains and losses. However, the critical flaw lies in the compounding of daily returns, a phenomenon known as volatility drag.

As financial analysts note, leveraged ETFs designed to deliver multiples of daily returns fail to maintain proportional performance over extended periods due to the mathematical properties of compounding. For instance, a 2x leveraged ETF might underperform its unlevered counterpart by as much as 44% annually in volatile markets, compared to 87% for the unlevered asset. WPAY's 1.2x leverage, while less aggressive than 2x or 3x products, still exposes investors to significant erosion over time. This is particularly problematic when applied to individual stocks, which exhibit higher volatility than broad indices.

Performance Risks: Downturns and Return Erosion

The historical performance of WPAY underscores these risks. During November 2025, the ETF recorded a -8.8% return, outperforming its category average of -8.3% but still reflecting the amplified losses inherent in its structure. By December 2025, it had experienced a drawdown of -17.25%, a stark reminder of the fragility of leveraged strategies during market stress. Over the full year of 2025, WPAY returned -2.44%, while its 2026 YTD return of +1.80% as of January 2026 suggests a precarious recovery.

These patterns align with broader trends observed in leveraged ETFs. Data from investor forums and financial analyses indicate that such products often deliver inflated short-term returns but suffer severe erosion during prolonged downturns or periods of high volatility. For long-term investors, the compounding decay and drawdown risks make WPAY a poor fit for capital preservation or steady income generation.

Counterparty Risk: A Hidden Vulnerability

Beyond market risks, WPAY's reliance on TRS introduces counterparty risk. The fund's prospectus explicitly warns that swap agreements carry the risk of default by counterparties, which could lead to unanticipated losses. While the notional value of swaps is reset weekly, the exposure to credit risk remains, particularly in a low-interest-rate environment where counterparties may face liquidity constraints. This structural vulnerability is often overlooked by investors focused on yield but could materialize during systemic crises.

Conclusion: A Misaligned Proposition

WPAY's design appears to cater to short-term traders seeking amplified returns in favorable markets. However, for long-term investors, the combination of volatility drag, compounding decay, and counterparty risk creates a flawed income strategy. The fund's performance during the 2025 downturn and its structural inefficiencies demonstrate that the costs of leverage-both explicit (expense ratios) and implicit (return erosion)-outweigh its benefits over time. As financial markets continue to evolve, investors would be wise to treat WPAY and similar instruments with caution, reserving them for tactical, short-horizon allocations rather than core income portfolios.