IWMY: High-Yield And Weekly Income From The Russell 2000

Defiance R2000 Weekly Distribution ETF (IWMY): 30% yield via Russell 2000 call spreads, but NAV erosion & high fees. Click to learn more.

IWMY Fast Facts Defiance R2000 Weekly Distribution ETF (IWMY) is an actively managed options income ETF launched on 10/30/2023. IWMY has a distribution rate of 30% and a total expense ratio of 1.05%. Distributions are paid on a weekly basis.

It is a small ETF, with $98 million in assets under management (“AUM”) at the time of writing. Nonetheless, the average daily trading volume of $1 million is sufficient for long-term investment. 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 strategy involves holding shares of a passive ETF tracking the Russell 2000 Index and selling daily credit call spreads on the index. Instead of buying an ETF for Russell 2000 long exposure, the fund may use a “synthetic long” strategy combining long call options with short put options or purchase deep in-the-money call options 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. A 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, allowing the ETF to catch part of a rally.

Such a strategy enhances income with an option premium; it creates a performance drag relative to the index during sharp rallies, as the fund fails to capture any underlying gains between the calls' strike prices. In IWMY, call spreads are rolled on a daily basis with near-term expiration. The fund targets net premiums of 2.5% per month and an annual cash distribution of approximately 30%.

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 (“NAV”) and therefore the dollar amount of future distributions.

The portfolio turnover rate was 5% in the most recent fiscal year. I will use the iShares Russell 2000 ETF (IWM) as a benchmark. Portfolio

As an example from 7/17/2026, the fund has 95.9% exposure in the Russell 2000 through deep in-the-money call options on the index, expiring on 12/18/2026 with a strike price of 200.34. Additionally, the fund has about 4.3% in cash equivalents and a Treasury fund, and two positions in Russell 2000 Index calls (one short and one long) expiring on the current date, with strike prices of 2974.57 (short) and 2982.6 (long). The index was at 2974.57 at the previous daily close.

Options will have been rolled when you read this. Performance IWMY has underperformed IWM by 9% annualized from 11/6/2023 to 7/17/2026 with lower risk, measured in the table below by volatility and maximum drawdown. Risk-adjusted performance (Sharpe ratio) remains inferior to the benchmark.

Of course the total return will change with the performance of the underlying index, and NAV will drag over time. Data: Portfolio123 Like for most, if not all, buy-write ETFs, the high yield doesn’t offset price underperformance. Excluding distributions, IWMY has lost 68% since its inception, while IWM is up almost 80%.

Distributions were monthly until September 2024, then became weekly on 10/9/2024. Following the share price trend, distributions have decreased by 74% since they became weekly, as plotted on the chart above. Based on the fund’s 19a-1 notices, the percentage of ROC is variable and up to 100% for certain weeks.

The issuer doesn’t publish a year-to-date ROC percentage. High ROC may have a negative impact on a shareholder’s tax. For example, non-resident aliens (“NRA accounts”) 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 IWMY and five options for income ETFs based on the Russell 2000: - Global X Russell 2000 Covered Call ETF (RYLD) - NEOS Russell 2000 High-Income ETF (IWMI) - Roundhill Russell 2000 0DTE Covered Call Strategy ETF (RDTE) - iShares Russell 2000 BuyWrite ETF (IWMW) - YieldMax Russell 2000 0DTE Covered Call Strategy ETF (RDTY) * calculated with Portfolio123 from 3/12/25 to 7/17/26 to match inception dates.

IWMY is in last position for the Sharpe ratio and second to last for total return since March 2025. The best performer is IWMI, with monthly distributions, a lower yield (13%), but significantly higher price return and cheaper fees. RDTE, the only other ETF in this list paying weekly distributions, outperforms IWMY in yield, return, Sharpe ratio, and trading volumes.

Takeaway Defiance R2000 Weekly Distribution ETF (IWMY) provides weekly income and aims at a 30% yield with a daily options strategy on the Russell 2000 Index. IWMY is best suited for investors seeking a high and stable yield and who can accept significant NAV erosion. Nonetheless, the fund’s risk-adjusted performance is uncompelling compared to the underlying index and competitors.

- Pro: 30% yield, stable income. - Cons: fast NAV erosion, high fees, and lags behind competitors. This article answers these three main questions about IWMY: - How does IWMY enhance the yield of the Russell 2000?

- How does IWMY compare to ETFs with a similar objective? - What type of investor is IWMY best suited 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.