Forget QYLD: $100,000 Became $348,660 in Fidelity’s Dividend Fund and $260,850 in QYLD

Income investors buy the Global X NASDAQ 100 Covered Call ETF (NASDAQ:QYLD) for one reason. They want a large cash distribution every month. The fund sells call options on the Nasdaq-100 and passes the premium to shareholders. For a retiree drawing down a portfolio, that cash flow can cover regular expenses. Over a full decade, though, QYLD trailed a plain dividend fund, the Fidelity High Dividend ETF (NYSEARCA:FDVV). The same starting investment grew far larger in Fidelity’s fund than in QYLD.

A $100,000 position in FDVV grew to $348,660 over ten years, a 248.66% return. The same $100,000 in QYLD became $260,850, a 160.85% return. The gap between them is 87.81 percentage points. Both windows begin on October 7, 2016, so the two funds are measured over exactly the same period.

Every Figure Here Assumes Reinvested Distributions

Each return assumes every distribution went straight back into the fund to buy more shares. That idea matters most for QYLD, because most people who own it buy it to spend the monthly income. Taking the cash each month would not have produced the $260,850 outcome shown above. The same holds for anyone who spent FDVV’s dividends. These figures show what each strategy produced when it was left to compound, and nothing more.

QYLD Has Led Every Recent Window

Over the past year, QYLD returned 23.02% against 13.48% for FDVV, putting the covered-call fund ahead by 9.54 points. Year-to-date, QYLD is up 15.54% versus 10.93%, a lead of 4.61 points.

The past month extended the split. QYLD rose 2.6% while FDVV returned -2.51%.  As of October 8, QYLD trades near $18.66 and FDVV at $61.49.

Anyone who bought QYLD a year ago has done better than an FDVV buyer, but the case for FDVV depends on a decade of compounding. That said, the last twelve months favor QYLD.

How Selling Calls Gives Away the Upside

A call option gives its buyer the right to purchase an asset at a set price before a set date. When QYLD sells that right against its Nasdaq-100 portfolio, it collects cash up front, and that premium funds the monthly distribution. In exchange, any gains above the set price go to the option buyer.

QYLD keeps the losses when stocks fall but gives up much of the gain when they rally. Covered calls work best when markets move sideways or rise modestly, because the fund keeps the premium without surrendering much. Over the past decade, giving away that upside repeatedly contributed to QYLD’s shortfall against FDVV.

FDVV owns dividend-paying stocks directly. When those stocks rise, shareholders keep the full price gain on top of the dividends, and that difference compounds every year.

Five-Year Returns Still Favor FDVV

The five-year record lies between the two stories. FDVV returned 91.27% against 55.39% for QYLD, a gap of 35.88 points in the dividend fund’s favor. That matches the ten-year picture and runs against the past year, as QYLD’s recent lead is the newer development and it has not yet erased the longer record.

Who Each Fund Actually Serves

QYLD pays cash on a monthly schedule, though the amount changes from month to month. A retiree who covers bills from portfolio income may reasonably value that regular income more than a bigger ending balance. That is the fund’s core appeal. It still carries stock market risk and does not replace bonds.

FDVV suits someone who wants the balance to grow and does not need to spend the income now. It pays quarterly. An investor living on it would have to budget around a lumpier schedule or sell shares from time to time.

The process of switching depends on the account. Inside an IRA or 401(k), selling QYLD and buying FDVV triggers no tax. In a taxable account, selling QYLD at a gain creates a capital gains bill that cuts into the long-term edge. Some investors instead direct new contributions and QYLD distributions toward FDVV, which builds a position without selling.

Which Investors Lost the Most by Staying in QYLD

The ten-year gap matters most for investors who reinvest QYLD’s distributions and have a long time horizon. They are using an income-focused fund for long-term growth, and over ten years that mismatch cost them 87.81 points against FDVV. For retirees who spend the monthly check, QYLD’s income schedule remains its main appeal. The past year’s lead is real, but it has not reversed a decade of results.

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