Parametric Equity Premium Income ETF

PAPI

Market cap $292M

The Parametric Equity Premium Income ETF (PAPI) underperforms its peer call-writing funds due to its strategy that creates a mismatch. PAPI's overwrite strategy on a diversified, equal-weighted portfolio limits upside, especially as tech and the Magnificent 7 drive index gains, but then they write calls on SPX. On the other hand, the fund offers a stable, attractive 7.45% TTM yield and monthly distributions, appealing to income-focused investors seeking diversification.

Parametric Equity Premium Income ETF offers monthly distributions via a call-writing strategy, with a current yield of ~7.3%. PAPI's nearly equal-weight sector allocation provides diversification but has led to underperformance versus tech-heavy benchmarks and peers like JEPI, ETB, and ETY. The fund's strategy of writing calls on indexes that don't mirror its portfolio closely has contributed to its lagging total returns, especially in a strong bull market.

PAPI offers a more traditional covered call strategy with a modest 7.5% yield, appealing to income-focused investors seeking monthly distributions without excessive risk. The fund's diversified, value-oriented portfolio contrasts with its call writing on the tech-heavy S&P 500, creating a mismatch that has likely hindered performance. That said, PAPI's assets have nearly doubled in six months, indicating growing investor interest and likely to see the fund survive over the long term.

The latest data from the Federal Reserve reflects a diminished outlook for growth this year. With stagflation and recession concerns on the rise, investors looking to hedge their income in quality companies would do well to consider the Parametric Equity Premium Income ETF (PAPI).

Income investors seeking the potential benefits of an actively managed strategy this year should consider the Parametric Equity Premium Income ETF (PAPI). The fund combines dividends income with a systematic options writing strategy to generate income for investors.

Even though the fixed income market seems to be in good shape, there's still a good use case for diversifying one's portfolio yield.  For bond strategies, credit spreads remain a bit tight.

Approximately two years ago, just before an Exchange conference kicked off, one of the largest asset managers entered into the ETF market. Morgan Stanley Investment Management (MSIM), home to some of the strongest asset management brands, launched their initial suite of ETFs in January 2023.

Parametric Equity Premium Income ETF provides investors with monthly distributions through an option writing strategy and a diversified portfolio. PAPI's approach differs from Eaton Vance's closed-end funds, leading to underperformance so far but there are specific market conditions that could favor PAPI. Given the fund's underlying portfolio and strategy, it may appeal to income investors seeking to reduce overall tech exposure in their portfolio while generating monthly income.

While bond strategies may still have merit for yield-seekers, equity income ETFs can offer several unique benefits.  Equity income ETFs can serve as a one-ticker solution for both cash flow and capital appreciation.

Throughout 2024, equities have mainly demonstrated strong performance. They've inspired investors to bolster their equity exposure through a variety of ETF products.