What are Purpose Yield Shares?

Purpose Investments, a Canadian investment management firm, recently launched a suite of Yield Shares, making it the world’s first yield-focused single-stock ETFs. The new ETFs are designed to provide investors with high-quality yield exposure by investing in individual stocks with attractive dividend yields.

What are Yield Shares?

Yield Shares are exchange-traded funds that invest in single stocks and generate income by writing covered calls. These single stock ETF “yield shares” also include modest leverage of 25%, to juice returns.

Purpose Investments’ Yield Shares

Name	Symbol	Yield April 2023
Alphabet (GOOGL) Yield Shares Purpose ETF	YGOG	9.55%
Amazon (AMZN) Yield Shares Purpose ETF	YAMZ	9.61%
Apple (AAPL) Yield Shares Purpose ETF	APLY	8.16%
Berkshire Hathaway (BRK) Yield Shares Purpose ETF	BRKY	5.67%
Tesla (TSLA) Yield Shares Purpose ETF	YTSL	19.48%

These ETFs are available for purchase through most online brokerages and are designed for investors who are looking for yield-focused strategies.

What accounts for the differences in yield between these ETFs?

One of the factors that determines a call options value is the volatility of the underlying security. In the case of these ETFs, some of the stocks referenced are quite volatile while others are not. Therefor, the stocks with the highest volatility such as Telsa have the highest yield.

Benefits of Purpose Yield Shares

The main benefit for Purpose Yield Share ETFs is they automate the process of writing covered calls. Another benefit is they allow Canadian investors to hold US stocks in a wrapper that will guard their estate from US estate tax. Another benefit is they gain leverage at rates that are attractive to most retail investors and they add yield to stocks that wouldn’t otherwise pay dividends.

Costs of Purpose Yield Shares

The main cost to Purpose Yield Shares is their management fee which is 0.40% per year. But, the total expense ratio of these funds will be higher than this. Since these ETFs are less than 1 year old at the time of writing, they have not published their Management Expense Ratio (“MER”) which will include all the costs incurred by these funds. Plus, since these ETFs have relatively low market caps, their MERs will probably be a lot higher than their management fees alone. Expect the MERs of these covered call ETFs to come to the range of 1% to 2% per year. Like, Purpose Investments other Covered Call ETFs.

Another cost for investors to keep in mind is the bid/ask spread of these ETFs. Since they have small market caps, they won’t be as liquid as other large ETFs. Their market makers will need to bake in a larger spread between buys and sells to justify the cost of capital.

Recommendation

In conclusion, Purpose Investments has launched a suite of single stock ETFs, which are the world’s first covered call single-stock ETFs. These ETFs invest in individual stocks with attractive dividend yields and generate income by writing covered calls, with modest leverage of 25% to boost returns. The Yield Shares are designed for investors who are looking for yield-focused strategies and offer the benefits of automating the covered call writing process, allowing Canadian investors to hold US stocks without incurring US estate tax, and adding yield to stocks that wouldn’t otherwise pay dividends to their portfolio. However, investors should keep in mind the management fee and bid/ask spread of these ETFs will be higher than other ETFs due to their relatively low market caps.

Depending on your investment objectives, these single stock ETFs could be suitable for some income oriented investors.

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