QDVO: The New Kid on the Block Making Waves in the Covered Call ETF Space

Move over JEPQ, there's a new covered call ETF in town, and it's not just here to participate – it's here to compete. Amplify's CWP Growth & Income ETF (QDVO) might be the new kid on the block, but it's already turning heads with its unique approach to the covered call strategy.

Last week, I started an IDVO position in our family portfolio - and we are looking to start a QDVO position in the coming weeks, adding a related position focused on quality and growth.

David vs. Goliath... But David's Got Some Tricks Up His Sleeve

While JEPQ sits comfortably on its $21B throne, QDVO is the scrappy newcomer that's been quietly outperforming since its August 2024 debut. Think of QDVO as the smart kid in class who doesn't just follow the textbook – it rewrites it. Instead of blindly writing calls on an index every month (looking at you, JEPQ), QDVO's managers take a more tactical approach, selectively writing calls on individual positions.

The Secret Sauce: Flexibility Over Formula

Here's where it gets interesting: QDVO has only covered calls on about 27% of its portfolio. That's like keeping 73% of your chips off the table, ready to let your winners run. Compare that to JEPQ, which essentially has its entire portfolio capped like a bottle of premium champagne you can never fully enjoy.

This flexibility creates three major advantages for investors:

1. Upside Potential in Bull Markets: When tech stocks are soaring (hello, AI boom!), QDVO's uncapped positions can fully participate in the rally. Historical data shows the NASDAQ 100 has monthly gains exceeding 3% about 39% of the time, with some months seeing gains as high as 25%. With JEPQ's fully-covered approach, you're essentially signing away those blockbuster months in exchange for the premium income.

2. Tactical Option Selection: QDVO's managers can cherry-pick which stocks to write calls against based on their volatility and potential. Think of it as being able to sell insurance on specific houses in a neighborhood rather than being forced to insure every house regardless of its condition. Since individual stock options typically command higher premiums than index options (thanks to higher implied volatility), QDVO can generate meaningful income while keeping most of its portfolio free to appreciate.

3. Risk Management Flexibility: Market looking toppy? QDVO's managers can increase their covered call exposure. Seeing opportunities for growth? They can dial it back. This dynamic approach means the fund can adapt to changing market conditions rather than being locked into a rigid strategy. It's like having a driver who can switch lanes when traffic builds up versus being stuck in the same lane regardless of conditions.

The Numbers Game: Quality Over Quantity

Let's talk numbers, and I mean all of them – not just yield.

The Yield Story

Yes, JEPQ flashes that attractive 10% yield like a peacock showing its feathers. QDVO, meanwhile, targets a more modest 4-8% distribution rate. But here's the kicker – QDVO's distributions are estimated to be about 95% Return of Capital (ROC), while JEPQ's distributions are largely treated as ordinary income. For taxable account investors, that's like choosing between a smaller slice of tax-efficient cake or a bigger one with a hefty tax bill for dessert.

A Deliberately Compact Portfolio

While most ETFs spread their bets across hundreds of stocks, QDVO takes a more focused approach:

• Just 42 equity holdings (plus 3 other holdings)

• Top 10 holdings make up 58% of the portfolio

• Each position is carefully selected for both growth potential and options premium opportunity

This concentrated approach offers several advantages:

1. Quality Control: Easier to maintain high standards when you're only picking 42 stocks instead of 100+

2. Focused Management: The team can truly know each position inside and out

3. Efficient Options Strategy: More manageable to write targeted calls on individual positions when you have a focused portfolio

4. Lower Portfolio Turnover: At 27% (reported as of 09/30/24), it's running leaner than many peers, potentially reducing trading costs

Putting It All Together

Think of it this way: QDVO is like a specialty restaurant with a carefully curated menu of 42 dishes, each one perfected and actively managed, versus a buffet with hundreds of options but varying quality. Yes, the dividend yield might be lower, but between the tax efficiency and the focused portfolio management, you might find yourself with more money in your pocket after all.

The Portfolio: A Different Kind of Tech Play

While both funds have a tech tilt, QDVO takes a broader approach, fishing in the Russell 1000 Growth pond rather than limiting itself to the NASDAQ 100 aquarium. The result? A portfolio that's still tech-heavy (38% in technology) but with enough diversification to avoid putting all its eggs in the Silicon Valley basket.

Let's break down why this matters for your portfolio:

Smart Sector Balancing

• Tech Without the Tech Wreck: Yes, QDVO loves its tech (38% allocation) but doesn't go all-in like many NASDAQ-focused funds. It's like being a tech enthusiast while maintaining a healthy work-life balance.

• Communication Services Savvy: A hearty 22.6% allocation to communication services (think streaming and digital advertising giants) provides exposure to digital transformation without pure tech risk.

• Consumer Cyclical Cushion: The 13.2% position in consumer cyclicals helps capture post-pandemic recovery trends while providing some defense against tech sector volatility.

  

  Sector Exposure (Source: Morningstar)

Quality Over Quantity

The numbers tell an interesting story about QDVO's approach to portfolio construction:

• Only 42 equity holdings (compared to 100+ for NASDAQ-tracked funds)

• Top 10 holdings represent 58% of the portfolio

• Each position is carefully selected for both growth potential and option-writing opportunities

The Style Advantage

According to Morningstar's analysis, QDVO brings some impressive characteristics to the table:

• Higher quality scores than category peers (think strong balance sheets and solid earnings)

• Above-average liquidity (making it easier to trade in and out of positions)

• Strong momentum characteristics (but without chasing every hot stock)

  

  Style - note the stronger earnings, sales, and cashflow growth figures (Source: Morningstar)

What This Means for Your Investment

1. Better Sleep at Night: The broader diversification means you're not betting everything on the next tech boom (or bust).

2. Growth with Guards: The fund's quality tilt helps protect against the "growth at any price" trap that caught many investors in 2021-22.

3. Flexibility When It Matters: Higher liquidity in holdings means the managers can adjust positions more easily when market conditions change.

4. Income from Multiple Sources: The diverse sector exposure means option premium income isn't solely dependent on tech sector volatility.

Think of QDVO as the sophisticated restaurant that sources ingredients from multiple high-quality suppliers, rather than the trendy spot that only serves Silicon Valley-sourced fare. Sure, tech is still the main course, but there's a whole menu of other opportunities being served up.

The Verdict: A Tale of Two Strategies (And Long-Term Wealth Building)

So, what's the bottom line? If you're investing in a taxable account, QDVO might be your new best friend. If you're all about that high-yield life and don't mind the tax implications, JEPQ remains a solid choice. Think of it this way: QDVO is like a skilled chess player making calculated moves, while JEPQ is more like a reliable factory producing consistent but capped returns.

Building Multi-Generational Wealth: The QDVO Advantage

Let's break down why QDVO's approach might be particularly compelling for long-term family wealth building:

1. The Tax-Efficient Compounding Effect

• Return of Capital Magic: With 95% ROC distributions, you're essentially getting a tax-deferred growth vehicle outside of retirement accounts

• Lower Tax Drag: Less annual tax burden means more money staying invested and compounding

2. Growth-Oriented Portfolio Construction

• Uncapped Growth Potential: With only 27% of the portfolio covered by calls, your family wealth can participate in major market rallies

• Quality Focus: High-quality growth stocks have historically been excellent vehicles for long-term wealth accumulation

• Lower Turnover: 27% portfolio turnover means fewer taxable events and better long-term tax efficiency

3. Sustainable Income Strategy

Think of QDVO as a well-managed family business:

• Conservative Distribution: The 4-8% target yield is more sustainable long-term than higher-yielding alternatives

• Growth Protection: By not over-distributing, the fund maintains growth potential for future generations

• Flexibility: The tactical approach allows adaptation to changing market conditions over decades

Long-Term Family Planning Considerations

• Portfolio Role: Can serve as a core holding that balances current income needs with long-term wealth-building

• Risk Management: The quality tilt and active management help protect family wealth during market stress

• Flexibility: Unlike some tax-advantaged vehicles, maintains liquidity for changing family needs

Remember, sustainable wealth building isn't just about generating the highest current yield – it's about optimizing after-tax returns while maintaining growth potential for future generations. QDVO's approach to balancing these factors makes it worth considering as a cornerstone of long-term family financial planning.

Looking Ahead

While QDVO's track record is shorter than a TikTok video, its initial performance and thoughtful strategy suggest it could be a serious contender in the covered call ETF space. The fund's managers have shown they can dance in the rain, but we'll need to see if they can weather a full storm.

Is QDVO Right for You? 📊 Decision Guide

Best Suited For:

• 🎯 Long-term investors seeking growth with income

• 📈 Those who want to participate in tech upside while managing risk

• 💼 Taxable account holders

• 🔄 Investors who appreciate active management

• 📊 Those who understand that a lower yield doesn't always mean a lower total return

Maybe Look Elsewhere If:

• 💸 You need maximum current income regardless of tax implications

• 📉 You prefer purely passive index strategies

• 🔒 You want the largest, most liquid ETF options

Remember: Past performance doesn't guarantee future results, and even the best dancers occasionally step on their partner's toes. Always do your own due diligence and consider your personal financial situation before making investment decisions.