SPYT Fast Facts

Defiance S&P 500 Target Income ETF (SPYT) is an actively managed options income ETF launched on 3/7/2024. SPYT has a distribution rate of 20% and a total expense ratio of 0.92%. Distributions are paid on a monthly basis. It is a small ETF, with $149 million in assets under management (“AUM”). Nonetheless, the average daily trading volume of $2.6 million is sufficient for long term investment and tactical allocation as well. The issuer Defiance ETFs is an asset management firm founded in 2018 with 80 ETFs in three categories: leveraged, income, and thematic funds.

Strategy

As described in the prospectus by Defiance ETFs, the fund primarily invests in an ETF tracking the S&P 500 Index, and sells daily credit call spreads on the Index.

A covered call strategy consists of investing in an asset and selling one or more call options on it for a premium. The fund’s call spread strategy adds a long call with a higher strike price for the same expiration date. Buying an additional call reduces the premium income, but also limits the risk of loss on the short call should the underlying asset price surge beyond expectations. Such a strategy enhances income with option premium, and also limits the gains from the underlying index.

In SPYT, call spreads are rolled on a daily basis with near-term expiration. The fund may also gain synthetic exposure to the index by using call options.

The fund targets net premiums of 1.7% per month and an annual cash distribution of approximately 20%. There is no guarantee to reach the target, though. Distributions may include a significant part of return of capital (“ROC”). Distributions in excess of the fund’s earnings will reduce the net asset value, and therefore the dollar amount of future distributions. The portfolio turnover rate was 31% in the most recent fiscal year. I will use State Street SPDR S&P 500 ETF Trust (SPY) as a benchmark.

Portfolio

As an example from 6/5/2026, the fund has 99.9% of net asset value in iShares Core S&P 500 ETF (IVV), and two positions in S&P 500 Index calls (one short and one long) expiring the same day, with strike prices of 7584.31 (short) and 7599.48 (long). The index was at 7553.68 at the previous daily close, meaning the income-generating short call is 0.4% above the closing price, and the protective long call is 0.6% above the closing price. Options will have been rolled if you read this on a later date, and these percentages may change depending on market conditions.

Performance

SPYT has underperformed SPY by 4.1% annualized from 3/14/2024 to 6/5/2026, with slightly lower volatility and similar maximum drawdown.

Data: Portfolio123

Like for most, if not all, buy-write ETFs, the high yield doesn’t offset price underperformance. Excluding distributions, SPYT has lost 11.6% from inception to 6/5/2026, while SPY is up 47%.

Monthly distributions have been on a slow downtrend following the share price, as plotted below.

Based on the fund’s 19a-1 notice for May 2026, the distribution of that month was 100% Return of Capital (“ROC”). High ROC may have a negative impact on a shareholder’s tax payment. For example, non-resident aliens (“NRA”) may be initially submitted to withholding tax, with an adjustment at year-end that is not always automatic, depending on the broker.

Competitors

The next table compares characteristics of SPYT and four income ETFs based on daily rolled S&P 500 options:

• ProShares S&P 500 High Income ETF (ISPY)
• Roundhill S&P 500 0DTE Covered Call Strategy ETF (XDTE)
• TappAlpha S&P 500 Growth & Daily Income ETF (TSPY)
• Defiance S&P 500 Weekly Distribution ETF (WDTE)

This list is not intended to be exhaustive. In particular, ETFs with less then $50 million in AUM have been excluded. I have also added two non daily-rolled S&P 500 options income ETFs:

• NEOS S&P 500^® High Income ETF (SPYI)
• Goldman Sachs S&P 500 Premium Income ETF (GPIX)

* calculated with Portfolio123 from 8/21/2024 to match inception dates.

SPYT is ranked third in yield, sixth in total return between 8/21/24 and 6/5/26, and fourth in Sharpe ratio (a measure of risk-adjusted performance). Investors focused on yield may prefer WDTE or XDTE (with the inconvenient of higher volatility and faster price erosion), while risk-averse investors may choose SPYI or GPIX for total return, lower volatility and asset preservation.

Takeaway

Defiance S&P 500 Target Income ETF (SPYT) aims at a 20% yield with a daily options strategy on the S&P 500 Index. SPYT is best-suited for investors seeking a high and stable yield and accepting significant erosion in asset value, which may be offset by reinvesting a part of distributions.

• Pro: High and stable yield, sufficient liquidity.
• Cons: high expense ratio, high ROC, price erosion.

This article answers three main questions about SPYT:

1. What criteria does SPYT have for its holdings selection?
2. How does SPYT compare to similar ETFs?
3. Which investors is SPYT suitable for?

Editor’s note: This article is intended to provide a general overview of the ETF for educational purposes only and, unlike other articles on Seeking Alpha, does not offer an investment opinion about the ETF.