With ultra high-yield funds, it is important to pick funds with good underlying assets that can support the yield of the fund. This helps guard against NAV erosion. You can see an example of this with Yield Max’s fund, $CHPY which has avoided consistent NAV erosion so far. You generally want the following qualities if you want to guard against NAV erosion: 1.) Pick an asset or sector with tremendous upside potential such as semiconductors/AI/Big Tech (currently). 2.) In general, pick a fund that holds the underlying instead of using synthetic options. The only exception to this is Kurv Investments who has managed their synthetics very well. 3.) You want a fund that sells either call spreads or put spreads (these are NOT covered calls. Call spreads are partially uncapped and put spreads are uncapped but have more downside risk). If you do buy a covered call fund, make sure they do not sells covered calls against 100% of the assets of the fund. For example, GPIX sells covered calls against 25% to 75% of the fund’s assets based on market conditions. If GPIX sells against 25% of the funds assets, the 25% is capped but the other 75% of the portfolio is not. This is why how much of the assets they write covered calls against matters. These tips do not eliminate NAV erosion risk. After all, there is no free lunch, but these tips can help you mitigate the issue and make your income from these funds more durable.
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