QYLP ETF - Deep Dive

This post first appeared on 8percentpa.substack.com

We wrote an earlier post on this covered call ETF. We discussed how it could be an interesting hedged play to benefit from the continuing rise of the Magnificent Seven and NASDAQ. Today, we will go through the fundamentals, technicals and valuation more deeply.

1. Fundamentals

QYLP is a covered call ETF for the NASDAQ100 (top 100 stocks on NASDAQ) denominated in British pounds (GBP). There is a primary ETF listed on NASDAQ with ticker QYLD and it tracks the index BXNT which is basically the same thing - covered call version of the NASDAQ100. Both QYLP and QYLD pay dividend monthly by writing covered call options of its constituents. Here’s the investment thesis for QYLP:

The QYLP ETF (Ticker: QYLP) is a covered call ETF listed in the UK that tracks the NASDAQ100 but overlaid with the writing of covered calls which generates option premiums that is paid out monthly. It has generated c.7% return over the last 12 months and would be able to contribute stable dividends to the portfolio while providing exposure to the NASDAQ top 100 constituents. While unrelated to activism, this exposure ensures participation in the event of continuing melt-up of the Magnificent Seven and the best run companies in the world today.

QYLP is an Ireland domiciled ETF and has the following fund details (screenshot below). As an innovative covered call ETF, expense ratio is slightly higher at 0.45%. Market cap is decent at c.USD480m (although the primary ETF has >USD8bn in AUM. The primary ticker is QYLD and there is more information for QYLD which is the ticker for the same instrument listed on NASDAQ and the USD denominated version on the LSE. QYLP is the GBP denominated version.

The following table shows the top 10 constituents of the QYLP as of Jul 2025. We can see the Magnificent Seven (Alphabet / Google, Amazon, Apple, Meta / Facebook, Microsoft, Nvidia and Tesla) prominently featured. In fact, the NASDAQ index represents the best run companies on our planet with perhaps a couple of exceptions. In a way, this investment idea is a hedge against missing out on the continuing growth of these greater-than-great companies. Granted the risk is that we are near the peak and should markets collapsed, we will be underwater for a while.

Performance and Track Record

The following charts show the performance of QYLP, QYLD and the QQQ indices. The Ireland domiciled, UK listed QYLP has the shortest track record and the numbers also assume that the dividends are re-invested. At 7+% annualized return, the track record is decent and comparable to the primary ETF (second table below).

Performance of the QYLP ETF listed on LSE with okay track record

The next table shows the performance of the primary index QYLD, listed on NASDAQ and denominated in USD. We can see that the annualized returns are not far from QYLP (above) at 7+%pa. That has been the case for the past 10 years and also since inception in 2013. Both indices are managed by the Korean asset manager, Mirae.

QYLD listed on NASDAQ with longer track record

The last chart shows the performance of QQQ, one of the most popular NASDAQ ETFs and we can see that performance triumphed both QYLP and QYLD by a huge margin. For 10Y, annualized return it was 18.7%! The price to pay for regular dividend income and less volatility is c.10% of return per annum, which is a lot.

That said, let’s analyze some of the positives and risks of owning this ETF.

Positives

Participation and diversification: As alluded to above, the exceptionalism of the Magnificent Seven (Mag7) is something unique in the past twenty years or perhaps the entirety of humankind. Less than 10 companies today generate more than USD50bn free cashflow (FCF) globally on an annual basis and we have almost every member of the Mag7 generating that much. To add, apart from the Mag7, most of the NASDAQ companies in the index are actually best-in-class and might well be the next generation of FCF juggernauts. As such, I believe the risk of missing out is not small and it pays to just have some exposure via this ETF.

To delve delve a little more on this topic, since we pivoted the portfolio to focus on activists, which is inherently a value strategy, there is almost no opportunity to invest in these best of the best NASDAQ names. Yes, one activist had engaged Google and even Microsoft was targeted in the past but activist stocks are usually not compounders. So having c.5% in some of these idiosyncratic strategies is a very pertinent for the portfolio. That’s one reason why we also have physical gold in the portfolio.

Next topic, regular dividends!

QYLP and QYLD’s distribution calendar published on https://globalxetfs.eu/funds/qyld/

Regular Dividend Income: The other attractiveness of QYLP is that we get regular monthly dividend (table above) on top of exposure to NASDAQ. The annual dividend has hovered around 11-14% which is highly attractive to dividend investors. Owning this ETF in the UK, which has no with-holding tax, is also one of the reason why we chose QYLP. Additionally, there is always a base of dividend buyers which ensures liquidity for the ETF. However, we pay a big price for this regular income. We missed out almost 10%pa based on past 10Y track record. Although I believe the gap should close the longer we hold this instrument.

Another way to think about QYLP is that rather than holding cash or T-bills in the portfolio, owning this ETF gives us regular dividends, exposure to NASDAQ and firepower to add to high conviction activist names should interesting opportunities arise in the future.

With that, let's discuss the risks.

Risks

Deviation in performance in performance: While the NASDAQ has recovered and exceeded its previous all-time high in Feb 2025, the stock price of QYLP has languished. I can think of two reasons.

The rest of the post is on substack.

Huat Ah!

China A shares: Mistake turned Multi-Bagger

A long time ago, in blog posts far away, we discussed the merits and demerits of ETFs. It was around the earlier posts that time (2009 and 2010) that I bought into the China A share ETF thinking that buying into the country that would conquer the 21st Century made sense. As it turned out, it didn't. The only ETF that one should buy is the S&P 500. ETFs, by and large, did not help investors make money. Investing is just such a game. What looked so right doesn't turn out right after all.

Buying China seemed so right!

Today's story is about how a mistake turned out into a multi-bagger and what are the lessons that we could learn. I must say, this is first and foremost a mistake. It was luck that turned it into a multi-bagger. The whole process was painful despite making money and if I were able to re-make some decisions, I would do things differently. Now, looking back, there were good lessons learnt. It's really through mistakes that we learnt most. So sometimes, we really should thank bad happenings and results and also our adversaries for showing us our weaknesses. To sum it up nicely, I think the three lessons would be:

1. Understand the downside well

2. Long term holding power

3. Move in incremental steps wisely

At the time of buying China A shares around 2009-2010, it was supposedly a high confidence bet. The Global Financial Crisis hit all markets bad, China was down 50-60% from its peak, it was really looking cheap. The investment thesis was that China would continue to grow to become the world's largest economy in time, surpassing the US. It was hard to pick Chinese stocks well, so why not just buy the whole Chinese market. China A shares was trading at low teens PE, really not expensive. Although financials dominated the index but that was normal for most emerging markets so things should be ok. 

What was the downside? Well it was the implosion of all these Chinese banks that made up half of the index. So if these halved, maybe maximum impact to the ETF could be 20-25%? And if that happened, maybe it was time to add more! As it turned out, the banks didn't implode but the whole market just continue to languish. It went from low teens to single digit PE, earnings didn't improve, so the ETF did go down 20-25% and this blogger added more not understanding it was a mistake. There's a term for this, and it's well depicted in the following pic. Haha.

It's called catching a falling knife...

Fortunately, that assumption of maximum downside for China's A shares didn't turn out to be too wrong, the market just did nothing for many, many years which was bad enough as it meant 0% return. But to try to gauge the downside is always important. In good companies with some business moats, usually the downside could be 20-30%. If that happens, the right decision is to buy more. In some cases, the downside is 50%, then one would need to know what is the blue sky scenario, ie what's the maximum upside so as to justify risking losing 50% of capital. In others, the downside could be 100%, losing everything. This is like buying dot.com co.s or small firms with no moat. There is no recovery no matter how long term we are. 

This brings us to the second saving grace which was having long term holding power. So while the A shares did nothing for many years, I wasn't compelled to sell. It was locking up some capital which could have been put to better use but by keeping it to a certain percentage of the portfolio, it was also bearable. What would have been unbearable would be using leverage or making it too big a bet. These are the technical aspects that could have easily changed everything. So always use cash and size our bets wisely. More on this later.

After waiting for half a decade, things suddenly changed in a few months. The catalyst was the Hong Kong Shanghai stock connect. Investors suddenly realized that A shares were "too cheap". If they were connected via Hong Kong, there would be lots of demand for these from global investors. So the whole market started rallying. Meanwhile, domestic Chinese investors saw the wave coming and they didn't want to miss out! Aunties, students, retirees, workers, dogs, cats and their offsprings all started opening brokerage accounts to buy stocks. A shares went from 2,000 points to 5,000 points! For me, it was a mistake turning into a multi-bagger! Woo-hoo!

Snapshot of the ETF's factsheet in May 2015

Lady luck smiled at me more than anything else. It wasn't skill or patience. Although if we calculate the return over 5 years, it would be just 5-9%pa or so. No big deal. I am just glad I got bailed out. I sold the bulk of my ETF while leaving some to participate if there's any more craziness. This is #3: move in incremental steps wisely. Remember that the markets and the future is not predictable. So rather than moving in big steps, thinking that what we decided will pan out as we expect, it is always advisable to move incrementally. Have more than two bullets for each target, we are shooting targets we don't know which way they will move! 

For almost every purchase, it is always prudent to start buying just 1/3 of a full position. If it falls, that we could add. If it runs, then it's just too bad but at least we have 1/3. It is also advisable to phase our buys over time periods like every 6 or 12 months. Market are unpredictable, so never think that we are so damn correct and will be proven right and never put our eggs into one basket. This works for selling as well.

So for the A shares, when it started moving and I was up 50%, I sold 1/3. It then went on to move up another 20% or so and I sold another 1/3. After selling the second tranche, I was left with almost pure profits so A shares could fall to zero, I would still have made money and if it continues to go crazy, I could still participate in further upside. Moving incrementally is one of the most important moves in investing but rarely discussed.

Of course, it doesn't help to cut it too finely or double down unto mistakes. Again, this is an art and it is really hard to come up with specific rules that could work universally. This A share saga was a rare case of a mistake making money. In general, we would be counting on mistakes to help us refine our investment process while hopefully not paying up too much tuition fees to learn basic lessons like understanding the downside well, taking the long term approach and moving incrementally.

A happy Vesak Day long weekend to all Buddhists out there!

Fallacies of ETFs

This post is updated in 2016.

I have posted a long time ago that investing in ETFs could be one of the easy ways to make money. The theory was simple. Since 80-90% of all investors never beat the index, then why should we even try? We should just buy the index. That was simply buying ETFs. Since ETFs replicate the indices and are traded just like any stocks. We can easily buy them using one of the brokers like Poems or Kim Eng or whatever.

We stand to enjoy market growth (8-10% per year) and we need not worry too much about losing our shirts.

Well, the story didn't turn out that way. As I have mentioned before, every investing decision only has a 60% chance of getting it right. At best. There is no such thing as a sure win... far from it. Investing is just a bit better than playing roulette, betting red or black whatever. Of course, roulette is actually only about 40+% of winning since the zeros and double zeros somehow appear more often than they should. So 60% is as good as it gets.

Back to ETFs, what looked like a good way to invest turned out to be wrong. Even Buffett got that wrong. He did advise laypeople to just buy ETFs if value investing is just way too tough.

Why did ETFs fail?

Well, the following would be my own reasons:

1. There are only one or two ETFs that generated good returns over time.

The famous ETF that we should buy is the one that replicates the S&P500. All the other thousands of ETFs out there just don't generate good return over time. Why? Because ultimately ETFs are just putting different stocks together. If you put enough crap together, you will still just get crap. Worse still, the crap overwhelms the true good gems or firms and you do not benefit by investing in such ETFs.

Even for ETFs that replicate market indices like those of the Hang Seng, or Nikkei, or China's A share or India's Sensex. The construct of most indices by definition includes a lot of crap such as financial entities, domestic firms and moatless businesses. Hence by investing in them, we might be able to generate a positive return over a very long time frame (like 20-30 years) but the return would just be mediocre (like low single digit). 

The reason why the S&P500 have historically been a good performer is probably because it represents the success of capitalism hitherto and the dominance of the US economy across the hundreds of stocks. Also, the index itself is actively managed by a committee. There are professionals debating which stock should be taken out and which stock should be added in. The careful selection ensures that the 500 companies are the real global dominant leaders with superb businesses like Colgate, 3M and Johnson & Johnson etc. By investing in this special ETF, you are buying pieces of great businesses. 

Over a good long term investment horizon, the indices of other key economies such as DAX of Germany, FTSE of UK and Hang Seng of HK/China had also performed well, representing the success of these regions/countries. Alas, for most of the other ETFs, especially those that were cut to finely like tech ETF or oil and gas ETF or renewables ETF etc, the returns are just too crappy. Even our own STI index. The longest dated chart from 1999 showed it started at 2000 and after 15 long years it's now at 3000. Yes 50% return but over 15 years just means that it's a paltry 3% return per year.

FSSTI over 15 years

2. ETF came with too much hidden costs.

After investing in ETFs over a few years, I have come to fully appreciate some of these hidden costs associated with ETFs. I must admit I have not understood these fallacies holistically and some of my claims here have to be further verified. They are just hunches that I believe could be true. 

Now the few problems with ETFs are: forex, dividends and liquidity. How forex is being mitigated in ETFs is not completely clear to me but my experience with the banks tells me that forex is a big way that banks can cream off the customers ie us. Ultimately ETFs are products pushed by the banks and I would think that ETF investors are also taken for a ride.

A few ETFs pay dividends which is all good and proper. But sadly, the majority of ETFs don't pay a single penny even when the underlying indices have good dividend yields. For instance, the Brazilian stocks that make up most Brazilian indices now pays 3-4% dividend but most Brazil ETFs do not pay anything to retail investors! Again, I see this as another way of ripping off investors.

And finally the last problem with liquidity is real and visible. ETFs traded on SGX are very thinly traded and the spreads could be very wide like 2-4% or more. Some are not even tradable since there are no market makers ie if there is no one on the other side of the trade, you cannot buy or sell the ETF.

So in short, while ETFs work on theory it just doesn't work in reality. That reminds me of Yogi!

"In theory, there is no difference between theory and practice. In practice, there is." - Yogi Berra

My experience with ETFs tells us that we make single digit return at best and probably barely breakeven if we enter at the wrong times. We stand to have a good chance of generating good return only when we buy the S&P500, which is the exception rather than the rule.

In the end, the best way to invest is to find great companies with great businesses and buy them at reasonable prices.

DB Brazil ETF - Part II

The second risk is China's decreasing steel consumption.

The last five years saw China's big ambition to develop its infrastructure and mass market condos for its people and hence steel consumption went through the roof, resulting in the bull market in steel and shipping (of iron ore to make steel). That party is now probably going into its 11th hour and Cinderella is ready to drop her glass shoe.

China needs to shift its economy from manufacturing to services, which would need less steel and hence less iron ore. Not to mention that after getting squeezed by the Australian and Brazilian iron ore producers for so many years, China is also aggressively pursuing new avenues of supply in other regions like Mongolia and Africa. This means new supply, less pricing power. So the iron ore story might not have a happy ending.

The saving grace for the iron ore producers would perhaps be bargaining power. With 3 guys controlling 80% of the market, basically they call the shots. They manage the supply, make sure there is always just enough. They manage the spot market, make sure that it stays elevated, then the contract pricing would have to follow.

In the longer run, it is also worth noting that steel consumption is very much integral to the development of our civilization and it will continue to grow. China may have peaked, but S.E. Asia needs a lot steel in the next few years. Not to mention Latin America would probably step up, which will benefit Vale. After that we have India. So maybe there is still hope.

To sum it up, the Brazil ETF makes a lot of sense, especially for the long run. Pricing wise, it is currently 25% below its all time high. It is likely to surpass that in the next 5 years.

As to downside, well, there is about 70% to its Lehman low, but it's not likely to go there bcos there is some valuation support. I would say it might go to 1.3x PBR or PE of 8x, ie 30% decline from current levels. But if that happens, then it's time to buy more!

Well just to sum up here:

Pros:
Exposure to Energy, Iron Ore and Brazil
Cheap valuation at PER 11x with 3% dividend yield
High single digit long term growth rate
Often at discount to NAV (due to tracking error - see below)

Cons:
Replacement of oil and China's slowdown
Low liquidity (10,000 shares traded per day only)
High tracking error (does not track the index well)
70% from absolute low

DB Brazil ETF - Part I

Last checked, there are now 75 listed ETFs in Singapore. As blogged a couple of times, ETFs present an easy way for lay people to invest into stocks and shares without having to put in too much effort (ie do a lot of study and research). Basically, you just buy into the regional/sector growth of the ETF. To learn more, simply click on the ETF label at the end of this post.

Today's post is about Deutsche Bank's Brazil ETF listed on SGX. It seemed like this might be one of the cheaper ETFs out there amidst global bullishness on Emerging Markets.

Brazil has the 8th largest economy in the world and it is projected to be in the top 5 in the next 20 years. GDP growth should be a high single digit for the foreseeable future, although a tad weaker than China, its cheaper valuation more than make up for it.

The Brazil ETF trades at a PBR of 1.7x, 1 yr forward PER of roughly 11x and gives a dividend of close to 3%. Although not as mouth-watering as in early 2009, I find such valuations quite acceptable, given its growth profile. And definitely cheaper compared to China.

The components of the ETF are basically just 4 items.

1. Petrobras, the oil giant with its mega oil-field currently under-development.
2. Vale, the iron ore major, which depends on China's appetite for steel.
3. The banks, which basically mirror the growth of Brazil.
4. The consumer staples, discretionary and utilities sector in Brazil, ie the Brazilian economy.

These four sectors roughly make up 25% each of the ETF. So basically, for every dollar put in, 50c is betting on Energy and Resource, and the other 50c on Brazil itself.

The first big risk here would the replacement of oil. As we all know, when oil hit $150 per barrel during the heydays, it really gave a wake-up call to the guzzlers of the world (which is pretty much everyone), reminding us that being held hostage by the Arabs is no fun and we better start to reduce our dependency on this energy source derived from the remnants of the dinosaurs.

And so, the techies of the world started their engine and ventured out there looking for new energy sources. We are now going big into nuclear, wind, hydro, oil sands, shale gas, solar and even human dynamo in Africa. Of course, we are also trying to use less at the same time, ie more hybrid cars and EVs. Now this is definitely no good for Petrobras.

Well, fortunately, I think the mitigating factor would be that it takes a long time for these alternatives to actually come to the market and finally free us from the Arabs. So meanwhile, we want to develop other big oil fields to limit their market share of oil. And this is where Petrobras and its mega oilfield comes in. And it is in the interest of the world to develop this and make it work.

Next post, we touch on another risk and round-up this topic!

Concerns on ETFs

I love ETFs. They allow retail investors to invest in indices with low costs, liquidity, give dividends and even have a helpline that you can call everyday to ask about the ETF you bought. What else can we ask for? However, due to time constraint and limited resources, I haven't been able to research and answer some thorny questions on them. If anybody reading this have answers, pls do comment and share the knowledge.

1. Forex risk

Most ETFs on the SGX are listed in USD and as we know, the USD is being dragged to hell as Fed prints money like there is no tomorrow to save the economy. Albeit this process will take many many years. However, if our ETF is in USD, wouldn't that mean that we are being screwed? My answer would be no. Bcos the USD is just a medium to reflect the underlying securities. What matters is the underlying intrinsic value of the securities, not the medium. Take oil for example, it is also in USD. But the underlying value of oil will continue to grow because there is not much left. So USD goes down by 20%, doesn't mean oil price will go down by 20%. Am I right?

2. Counterparty risks

What if the issuer of the ETF goes down? Like Lehman. What would happen to the ETF? My understanding is that since the ETF would be held by CDP and we do own the underlying stocks with the ETF, it can be liquidated and the money goes back to us. But is that good enough? How about if the issuer decides to close the ETF bcos it's no longer popular, or whatever other reasons they might have, are they obligated to give us money back at a fair value? Say the NAV of the ETF, of which the NAV is thoroughly calculated to reflect the real NAV of the index?

3. Swap based ETFs

Some ETFs do not actually own the underlying stocks of the index they are suppose to represent but a completely different basket of stocks and the return of that basket is swapped for the return of the index. This goes for most Lyxor ETFs. So when we buy the Lyxor China ETF, we actually own a lot of European stocks, whose returns are being swapped for the return of the Hang Seng China Index. So what are the risks involved here? One obvious one would be again counterparty risk. If the swap counterparty cannot honour the agreement, then ultimately we get screwed. Say the European stocks collapsed 20% while HSCEI was up 20%. The counterparty cannot deliver, the ETF holders might get short-changed. What about other risks? I don't have all answers though.

Here are just 3 issues, but I think there are many others that we have not thought about. If anybody has any answers, pls do share, thanks!

Analysing ETFs

It came as a pleasant surprise how SGX had expanded its portfolio of ETFs to 30 from a pathetic 10 when I was looking at it a couple of years ago. Recently, the biggest distributor Lyxor (Soc Gen), announced a further 5 ETFs to be listed. Looking at this trend, one can expect the no. of ETFs to go to 50 in the next 1-2 years, providing retail investors an inexpensive way to diversify and invest globally.

http://www.sgx.com/wps/portal/marketplace/mp-en/products/securities_products/etfs
This link provides a lot of info on the ETFs listed on SGX

At this juncture, I thought it would be good to post something about this investment product which might be one of the most important factor to help one achieve a 8%pa long term rate of return. Here are a few things I thought one should look at.

1. Expense ratio
Needless to say, this is probably the first thing to check. SGX listed ETFs have expense ratios ranging from 0.4-0.9%, which is kind of expensive compared to those in the US (as low as 0.2%) but much cheaper than unit trusts at 1.5% sales charge and 1% management fee. Well Singaporeans always get short-changed, so just live with it.

2. Market maker
Some ETFs listed way back in 2001-2002 has zero trades for the past 8 years without market makers which I think resulted in their failure. Now it's impossible to buy or sell them as there are no buyers or sellers! Even though its a listed product. Then came Lyxor with its market maker (basically some execution party and ensures you can buy or sell the ETF even when there is no counterparty) and viola, ETFs took off and Lyxor now has 50% market share of all ETFs listed in Singapore.

3. Spread
Even though there is a market maker and trades get executed, some times we need to pay attention to the spread. My rule of thumb is that if the spread is more than 1%, then it's a huge transaction cost. It is not something that you can change though. My greatest concern would be that if I hold this ETF for 10 years or more when the whole world has lost interest in it, will the spread balloon? Meaning I can't sell it. I have no answer at this point. Enlightened parties, pls share!

4. Dividends
Some ETFs listed on SGX give dividends, some don't. Personally I prefer dividends, a bird in hand man! Yes academics argue it doesn't matter, it might even be better bcos the dividends get re-invested - you don't get taxed, you get higher compounded return! I don't care, I want income stream and I want it now! Well that's me though.

5. Market Cap
The size of the ETFs determine if its likely that this product will continue to be listed, and I would say go for stuff with like USD 50-100mn in size. If it's too small, there might be a chance that the distributor will delist it. Then it's trouble trouble.

6. Valuations
This would be the single most important factor determining what or when to buy. As with stocks having their PER, PBR etc. ETFs also have their PER and PBR. It is not easy to get those figures (without a Bloomberg) but I think you can try to call their hotline and ask around. My general rule of thumb would be buy at PER 12x and PBR 1.2x. Some ETFs were at this attractive level earlier this year, now they are closer to PER 15x and PBR 1.5x. So wait for them to come down.

7. Components
Ultimately, ETFs are made up of stocks. So it pays to look at what's inside and see if you are comfortable with it. As with most indices, the bulk is actually finance stocks. Like STI is 40% banks maybe 20% Real Estate stocks. Russia used to be the hottest thing in town bcos it was mostly just oil companies. Since what we want is diversification, I would suggest look for ETFs that are more balanced, or buy a few to balance it out yourself.

8. Prospectus
Lastly check out the ETF's prospectus, see if anything is amiss or if there is something bothering you? Give them a call if need be. Usually it's some salesperson that is trained to answer some standard questions but no harm trying and hope they managed to help.

I am also still learning about all these, so knowledable parties pls share what you have learnt. 2009 and 2010 would be a good time to finally put money to work and earn a decent rate of return!