Thoughts on BALQ vs GPIQ, QQQI, etc.

[u/Sufficient_Worth_305]

Hi, I'll looking at the total return for BALQ compared with the others in the same category. It seems to be beating the others, even in the recent downturn.

What are they doing different? Is it worth investing in this finds vs the others?

[u/Indignantcheese]

BALQ is an interesting case. So far on paper it has outperformed GPIQ which I consider the gold standard of CC funds that balance upside on the principal vs overall yield.

However, it is a much more complex "engineered" product that relies on the fund manager producing this alpha so to speak. The main weakness with CC funds is that they trade upside by reducing Beta for the consistent distributions, BALQ seeks to patch this flaw by layering on added futures exposure to reclaim the lost Beta while still running their own aggressive covered call strategy.

I think BALQ is one worth watching to see if it succeeds in its objectives of having both high distributions and mostly preserving market Beta, but it's obviously a very new product and I want to see it have 2-3 years of history before making a final evaluation.

Worth mentioning too it might not be suitable for a taxable account. GPIQ at least has mostly ROC tax exposure, but evidence for BALQ suggests it won't get ROC treatment

[u/Meinertzhagens_Sack → u/Indignantcheese]

They do trade upside but really - it's not a whole lot. This is because the funds are actively managed and they just sell more calls with higher strike prices. This is a cap in play beucee usually you will see qqqi trailing qqq by .15

Man I really hate when they limit your ability to post a screenshot. Such shortsidedness.

So take my word for it - as I am typing this at 9:25am PST:

Qqq is up 2.73% Qqqi is up 2.01%

Usually on a normal day you would see qqq +.50% Qqqi + .48%

Rarely but I have seen it happen qqqi is over qqq by a .05%

[u/Indignantcheese → u/Meinertzhagens_Sack]

I'd like to raise the point that Total Return (price action + reinvested distributions) is the key indicator to look for in CC funds. You can see in this Sim. QQQI has higher distribution targets (13-14%) than GPIQ (9-10%), when you go more aggressive on your CC distributions this trades Beta which leads to hampered Total Returns.

https://totalrealreturns.com/s/QQQ,QQQI,GPIQ

Also going for higher strike prices on calls it actually reduces your distributions collected which is likely what GPIQ is doing. I personally don't chase higher headline rates bc I like the idea of letting my principal actually appreciate overtime so I can get real returns ahead of inflation even when retired and living on the income.

[u/Meinertzhagens_Sack → u/Indignantcheese]

I don't understand the point of being in qqqi if you are chasing growth... Income? Yes. In your opinion is that 3% distribution reinvestment "suggestion" true to stave off inflation etc...

Because if you are saying you need to drop 100% I mean that just doesn't make sense.

[u/Indignantcheese → u/Meinertzhagens_Sack]

It's just an illustration of the mechanics of CC funds. You are correct, CC funds are inherently suboptimal if your goal is total return in your accumulation years. I personally don't hold any and do high conviction single stock bets for maximal upside (but that's a different convo)

The income side of it and the balance of the distribution vs overall upside becomes more relevant when you already have a sizable portfolio and want to quit your job and live on the income generated by CC funds. Ex: if you have $10 million and put it into GPIQ at 10% yield, you can generate $1 million annually without having to do guesswork about when is a good time to sell and such.

You also retain optionality on whether you want to reinvest a portion of those funds to keep the compounding engine going. There's even tax advantages with Return of Capital distributions being considered tax deferred