In a rapidly evolving investment environment, where the demand for reliable income and growth is paramount, financial advisors need strategies that offer the best of both worlds. Pacer ETFs, known for its innovative products, has introduced two dynamic tools to meet this need: the Pacer Metaurus US Large Cap Dividend Multiplier 400 ETF Strategy (ticker: QDPL) and the Pacer Metaurus Nasdaq-100 Dividend Multiplier 600 ETF Strategy (ticker: QSIX). Both are designed with a focus on dividend multipliers, offering a unique way to enhance returns without sacrificing the growth potential of an equity portfolio.
In a conversation with The Wealth Advisor’s Scott Martin, Sean O’Hara, President of Pacer ETF Distributors, discussed the innovative approach behind QSIX and QDPL, emphasizing the practical advantages these exchange-traded funds (ETFs) bring to the table, particularly in balancing income generation with capital appreciation.
Innovative Strategies: The Approach Behind QSIX and QDPL
According to O’Hara, the key to these ETFs lies in their dividend multiplier strategy. “We just launched QSIX (Q6), which is a sister product to QDPL. We call these two strategies dividend multipliers,” he explains. The essence of both products is to generate a multiple of the dividend yield available in a broad index. QDPL targets four times the dividend of the S&P 500, while QSIX aims for six times the dividend of the Nasdaq 100.
For advisors working with clients who are seeking both income and equity growth, these ETFs present a powerful alternative to traditional approaches such as covered calls or simply relying on dividend-paying stocks. O’Hara highlights a significant downside of covered calls: “You’re basically selling away your upside. So, you’re getting a nice yield, but you don’t have much appreciation potential.” In contrast, dividend-focused strategies often push investors toward sectors that may provide strong yields but lack earnings growth.
What QDPL and QSIX are designed to deliver, O’Hara explains, is exposure to the underlying index returns, meaning investors can benefit from appreciation while also capturing a competitive and attractive dividend yield. Essentially, these ETFs allow advisors and their clients to retain the growth prospects of the broader index while enhancing their income potential—offering a balanced solution in today’s markets.
QSIX: Six Times the Dividend Yield of the Nasdaq 100
The Nasdaq 100 is well-known for its growth orientation, but QSIX offers an additional benefit by significantly amplifying its dividend yield. As O’Hara outlines, the dividend yield on the Nasdaq 100 is about 75 basis points. “So, you have six times 75, you’re talking about a 4.5% dividend yield on the Nasdaq 100.”
This considerable dividend yield is paired with the index’s potential for capital appreciation, making QSIX a potential standout option for income generation.
“If you’re an income-oriented investor with your equity portfolio, you want two things: an attractive yield and for your principal to grow,” O’Hara explains. QSIX provides both, investing most of the portfolio in the Nasdaq 100 while using a smaller portion of assets to enhance dividend income.
How It Works: The Dividend Multiplier Strategy
A critical element of QSIX’s strategy is its use of dividend futures to amplify income. O’Hara explains the process: “We invest about 85% of the money in the Nasdaq 100. That leaves us 15%, which we use as collateral, and we go into the dividend futures market and buy the difference that we need.” This is where the math comes in. With 85% of the assets already earning dividends from the Nasdaq, Pacer uses the remaining 15% to bridge the gap and target six times the index’s yield.
Pacer buys three years’ worth of dividend futures at a time. As these futures pay off, the ETF rolls that exposure forward. What makes this strategy particularly interesting is the potential for added returns. Dividends in the futures market are priced based on current levels, but if companies raise their dividends, the value of those futures increases. The strategy is especially appealing with the Nasdaq 100, given the opportunity for more companies to initiate dividends in the future, adding another layer of return potential.
Advantages over Covered-Call Strategies
One of the key differentiators of QSIX and QDPL is the ability to retain a higher level of upside potential compared to covered-call strategies. O’Hara draws a comparison: In a year when major S&P 500 covered-call strategies such as the JPMorgan Equity Premium Income ETF (JEPI) have seen the stock market rise by 17–18% but haven’t gained much appreciation, the same has gone for the Global X Nasdaq 100 Covered Call ETF (QYLD). However, QSIX captures “about 85%” of the S&P’s performance.
“If the S&P is up 17%, I’m getting like 14% appreciation at the Nasdaq, up about the same amount,” he explains. “So, I’m growing my principal by not selling all of my future income away, and getting higher income in return.”
The blend of growth and income is particularly appealing in a rising market, where giving up future appreciation for income through covered calls can be limiting. QSIX and QDPL are built to offer an alternative where advisors can preserve the upside potential while still delivering on the income front.
Inflation and the Role of Dividend Multipliers
With inflation concerns still present, many advisors are looking for solutions that can provide real returns in such an environment. O’Hara sees dividend multiplier ETFs such as QSIX and QDPL as well-suited to this challenge. “The Fed has made its first cut, and I don’t think they’re going to stop at one,” O’Hara notes. When rates come down and the appeal of fixed income instruments such as Treasury bills wanes, equity-based income strategies become more attractive. “As investors think, ‘Well, now what do I do and where do I come with my capital,’ you can use a strategy like QDPL or QSIX, have a little less equity volatility, but get that excess income that you’ve been getting in T-bills and just sitting and doing nothing.”
For advisors managing clients with significant cash holdings, these ETFs provide an alternative that balances growth potential with reliable income generation. O’Hara suggests that clients looking for higher income might consider transitioning into QSIX or similar offerings, which offer enhanced dividend yields without sacrificing appreciation potential.
Proven Success with QDPL, Building Momentum with QSIX
QDPL has already proven its merit in the market, having grown to about $500 million in assets since its launch more than three years ago. “We launched [QSIX] on the success of QDPL,” O’Hara says. With QDPL targeting four times the yield of the S&P 500 and consistently delivering on that promise, QSIX is a natural extension, offering the same approach but with the growthier Nasdaq 100 index as its base.
For advisors concerned about the track record of QSIX, O’Hara offers reassurance: “It’s not like there’s any mystery here, right? It’s just a mathematical calculation.” The strategy involves determining how much of the portfolio can be allocated to equities and how much collateral is needed to access dividend futures.
“They essentially pay off exactly like they’re supposed to,” he says, adding that the dividend multiplier approach has already been proven with the S&P 500, and QSIX applies the same strategy to the Nasdaq 100.
A New Tool for Advisors Seeking Growth and Income
In a market where income is increasingly scarce and growth opportunities still abound, QSIX and QDPL present a timely and effective solution. By providing a combination of enhanced dividend yields and equity growth, these ETFs equip advisors with a powerful tool to address both income needs and growth aspirations for their clients.
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Disclosures
This content is intended for financial advisors only.
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