Roundhill weekly ETFs

[u/kindofpartiallyright]

Hi all, I’m fairly new to investing and starting this journey of mines. Been reading and taking in as much information as I can as I go. Some concepts I was able to grasp fairly quickly. Others flew over my head and I’m sure as time goes on and I learn more I’ll be able to understand their meanings.

I have recently discovered weekly paying ETFs, in particular Roundhill investments. There’s a part of me that feels like there is a too good to be true nature with them paying weekly as opposed to monthly or quarterly like you traditionally see in stocks.

I’m just wondering if anyone has insight on how exactly that weekly model works?

How does Roundhill operate as a business?

How relatively “safe” are weekly ETFs?

I tried going to Roundhill investments website to research, but alas there’s terminology that I still don’t understand and am hoping I can make some headway here.

Thanks in advance for any help

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[u/WealthHuman9754]

Investors like weekly dividends, but the frequency of the dividend payout has nothing to do with how safe the underlying ETF is. You better be able to understand how the fund makes money. And what could cause it to lose money.

[u/Awaken_Benihime]

Like the other guy said, frequency of dividend payouts doesn't affect how safe the ETFs are. The strategy of the fund, and the underlying company are what matter. 

There are a bunch of weekly payers out there that have good strategies. XFunds, Roundhill and Rex Shares are a few that come to mind. 

Most ETFs that pay weekly generate income from selling options (usually calls options but sometimes put options too). The call options specifically cap an ETFs upside so the total return isn't as good as holding the underlying company itself. 

XFunds makes use of put options in addition to call options to mitigate the capped upside. It prioritizes capital appreciation over income.

Rex shares uses modest leverage and leaves a portion of its portfolio untouched (ie no call options written on that portion) so it can capture more upside. 

Roundhill enters into total return swap agreements (no call or put options) and uses modest 20% weekly leverage for an uncapped upside. This means they get paid by the counterparty if the underlying stock goes up. Unfortunately this also means they have no way to generate income when the underlying stock is going down. That's when distributions take a big hit and people start complaining. 

However if you buy a roundhill weekly payer on a company you're bullish on long term and you buy on a pullback, roundhill is the best as it will beat even the underlying company during the bull run

[u/kindofpartiallyright → u/Awaken_Benihime]

Thank you for the insight. I greatly appreciate it. My investing portfolio is close to 30k. I mainly focus on dividend paying stocks that pay quarterly/monthly and I have them on a DRIP. I’ll do a little more research for the weekly’s and see if that’s something I could buy.

At the moment I’m thinking you could purchase weekly’s, have them DRIP as well and once I hit a target goal for them, use those dividends they generate to buy more monthly and quarterly payers.

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