Leveraged MSTR Exposure Meets Weekly Payouts As Defiance's New ETF Makes Debut Distribution

Defiance ETFs announced the first weekly distribution for its recently introduced fund, the Defiance Leveraged Long + Income MSTR ETF MST, which provides leveraged long exposure to MicroStrategy Inc. MSTR shares along with income through an options-based approach.

The ETF, which listed on May 1, is designed to provide a return of about 150% to 200% of the day-to-day performance of MicroStrategy shares. The investment approach of the fund involves credit call spreads, enabling it to distribute income weekly. An initial payout of $0.3350 per share will be made on May 22 to the record shareholders as of May 21.

Notably, the fund’s approximated return of capital portion for this distribution is 99.29%, which shows that almost the entire distribution will not be from net investment income but rather a return of the shareholder’s initial investment, a characteristic shared by income-oriented, options-based ETFs.

Talking about the high-stakes logic behind the ETF, Defiance ETFs CEO Sylvia Jablonski said, "MST was born from two key observations: first, retail traders are drawn to leverage for its potential to enhance short-term performance directionally; second, many also want income and cash flow. By merging these features, MST offers a differentiated product that’s designed to deliver what investors have been asking for."

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Although the 30-day SEC yield is not disclosed up to April 30, the ETF positions itself as a vehicle for income investors seeking to ride MicroStrategy’s volatility, as well as its large exposure to Bitcoin indirectly. MicroStrategy has in excess of 1% of all available Bitcoins, making MST an attractive substitute for direct crypto investment.

But the structure of the fund comes with heightened risk. Utilization of derivatives such as swaps and options not only brings leverage and the risk of enhanced losses, but also heightened exposure to MicroStrategy’s share price fluctuation and, by extension, to Bitcoin market fluctuations. With the compounding on a daily basis, returns of the fund over longer periods may differ considerably from its targeted multiple of leverage.

With a gross expense ratio of 1.31%, MST enters a niche but expanding corner of the ETF universe, providing both leveraged equity exposure and systematic income. Nevertheless, the fund’s absence of an operating history and use of complex instruments make it better suited for experienced investors who are well-versed with derivatives and leveraged product risks.

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