Lead-Lag Live

Falling Rates, Rising Uncertainty: Investors Chase Higher Yields

• Michael A. Gayed, CFA

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In this exclusive conversation, Michael Gayed, founder of The Lead-Lag Report, sits down with Will Rhind, CEO of GraniteShares, to discuss the booming demand for options-based income ETFs like YieldBoost — funds generating 50% to 150% annual yields through innovative option strategies.

They unpack:
- Why rates are headed lower (and what it means for investors)
- How YieldBoost ETFs work and generate high income
- The truth about NAV erosion and downside protection
- What a diversified income portfolio could look like in 2025
- How investors are rethinking “safe yield” in a new market era

Lead-Lag Live brings you inside conversations with the financial thinkers who shape markets. Subscribe for interviews that go deeper than the noise.

#YieldInvesting #OptionsIncome #ETFs #HighYield #Investing #Finance #LeadLagReport #GraniteShares

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SPEAKER_00:

Uh if you are an advisor and you have to be in an office with other advisors or uh you're not an advisor, but have some people around you, uh, let them know that this is happening. I think it's gonna be a good conversation between me and the founder of Granite Chair, Mr. Will Ryan, talking about uh a topic which is always near and dear to most people's hearts, which is getting more income, especially in a world where yields are uh questionable in terms of where they're going and in a world where taxes, uh, depending upon which state you're in, may be going up. Uh, that's a little hint given our backgrounds here as far as where Will and I are based out of. Uh, for those that are here for the CE credits, I will email you afterwards to get your information. I'll submit that to the CFP board. Just stay to the end of the discussion here. If any of you want to ask questions during this roughly half an hour conversation, put it in the chat, but in the QA, we'll bring it up and we'll make this as interactive as possible. Uh so with that said, my name is Michael Gaia, publisher of the Lead Lag Aport and founder of Lead Lag Media. Uh joining here is Mr. Will Rind of Grant Shares. I feel like Will, uh some people may not be familiar with the Grant Shares, but they should be given that you're at 13 billion, I think, now in AUM. Uh so give a little context as far as the firm and uh and what you guys do.

SPEAKER_01:

Yeah, sure. So um morning everybody. Will Rind, uh founder and CEO of Granite Shares. We're an ETF issuer um based here in New York City. We issue also some different types of ETFs, but as Michael said, we're about 13 billion in assets under management. And we have an array of strategies here in the United States, in Europe, and uh in Asia as well. Probably the two things that we're most well known for are leverage single stocks. So on a day like today, when everyone's voting on uh Elon Musk's uh$1 trillion pay package, and there'd be a lot of activity, I'm sure, in our 2x long and short uh Tesla ETFs, so TSLR and TSDD. Uh leverage single stocks are hugely popular product category. And then we have our yield boost ETFs, which are, as the name might imply, uh very high yielding ETFs, typically around 50 to 150% per annum. Uh, these are ETFs that use options to generate these very high yields and um something that has just become a hugely popular asset class uh in today's world.

SPEAKER_00:

We're definitely going to touch on yield boost, but let's just talk big picture for a second here. Um everyone was convinced that we're gonna have a series of multiple rate cuts. And here comes Powell basically putting some cold water on that thought. It's not a foregone conclusion, I think was the quote. Um I know as a as an ETF issuer, you're not necessarily out there making calls on monetary policy, but I'm curious to hear your thoughts on where you think rates might be going because that will impact the uh uh discussion around yielding ideas. Well, rates are going down.

SPEAKER_01:

Um I think the question really is how fast um and to what particular level. And irrespective of the kind of end, let's call it the end of the Powell era and you know, where we get to before um Powell steps down, a new chair is appointed. But rates are on the way down. I think it's clearly a huge uh point for the new chairperson to get rates down. Clearly, the administration wants rates way lower than where they are just now. Um so whether whether we get another cut uh before end of year, I think most likely yes. Um, but the the government shut down, I guess, as long as that goes goes on, creates some uncertainty. And perhaps uh some of the some of the committee members um can have pause there. But you know, rate rates are coming down, and that's really the the crux of this conversation as to why you know people are looking for for higher yielding assets.

SPEAKER_00:

Maybe like five, six years ago, I used to always say when we were in zero interest rate policy, uh they want yield when there is none. Now they don't want yield when there is some. I'd now add a third layer to that. But the yield they want is really high yield. Right. Um talk us through a little bit, sort of from your vantage point, the way demand has shifted in terms of looking for higher yielding instruments outside of bonds.

SPEAKER_01:

I mean, I think that there's you know, there's clearly not one answer to explain all of this. It's a um, you know, it's a bit it's a broad church in terms of people's needs and wants. But ultimately, I think what's going on when it comes to the high yield, at least the space that we traffic in, um, is the rates that people are getting um in the bond market are just not high enough when you take into account inflation. Now, I'm not necessarily talking about um the official CPI number, although when you take that into account, it clearly does detract significantly from the sort of rates uh in markets, but the unofficial sort of inflation numbers. And you know, there's a growing movement of people, I think, that are looking to create an independent source of income outside of their job. And, you know, perhaps this is about on one level uh just financial freedom, being able to sleep at night. Perhaps another level, it's prudence uh in terms of creating a secondary source that you know provides a backstop if you were to lose your job, particularly people are nervous about AI and just the economy more broadly when it comes to job security at this time. And so the idea of creating an independent source of passive income, I think, is very appealing to a large uh section of the investor class today, and that's growing at a very significant rate. I mean, I think the the flows into options-based income ETFs are really quite staggering. Um, and again, I think that that sort of narrative explains uh at least in part, you know, what's going on. I think you throw in the volatility of the bond market and how bond portfolios let people down, um, particularly, you know, in the Fed easing cycle, sorry, the Fed rate hike cycle. Um, and you know, perhaps the fact that bonds were were not the safe haven that um people were sold that they were. Um you add that into mix, and I think it's people saying, well, if bonds aren't as safe as they were, then you know, the risk part I'm sort of more okay with. I'm just looking for for higher yields and I want consistency of income.

SPEAKER_00:

I wonder how much of that is um just a shift in trust. Like investors don't trust bond issuers because uh the the Fed will step in and inflate it away and certainly doesn't trust U.S. Treasuries, right? As we've seen given the way duration, versus trusting private enterprise. I mean, is there is there maybe a a shifting the way people just think about where they should trust their capital?

SPEAKER_01:

I think when it comes to treasuries, at least to money markets, it's not it's not a trust issue in my in my book. I think investors have no problem parking money in treasuries or money market funds. And it's not about trust, it's about um pure risk reward. And clearly with rates coming down, you know, there's a there's a huge amount of money that's sitting in treasuries and money market funds at the moment, trillions and trillions of dollars. And you know, that that was all fair and good when you know rates were 5%. But if we're going to a level significantly lower than 5%, and a low at a rate again that after inflation rates actually go negative again, uh, or or at least are negligible, then there's an argument that where does that capital go? And a lot of that capital's capital is going to come off the sidelines, go out of these funds, whether it's treasuries or money markets, and into risk-bearing assets. So some of those will clearly go into higher yielding elements of the bond market, but a lot will go into equities or go into alternative sources of income, like uh options-based income ETFs. And so that's, I think, more the case that as rates come down, you'll see a lot of that money in motion, and that money is going to find its way into more productive areas of the ecosystem, be it just straight equities or dividend equities or something like the options-based income ETFs.

SPEAKER_00:

So you hit on that point that this, I think you use the word staggering in terms of the demand for some of these options income strategies. Let's um let's go basic for the audience and explain how you generate income from options, but then after that go deeper because there's a lot of different ways of doing that.

SPEAKER_01:

So at its simplest point, when you sell anything, that you get something in return. And what you get for that is called a premium, and that can be distributed out to shareholders in the form of income. So you have specific option strategies where you sell an option on an underlying asset that generates an amount of cash, you distribute that cash to shareholders, and that's your distribution or your income or your yield, whichever way you you like to look at it. So it is simplest level, that's what's going on. And you sell options on underlying assets that could be stocks, that could be ETFs. Um, but this is a very, very sort of liquid and growing market that enables you to generate yield from an underlying asset, be it a stock or an ETF. So I think it's fair to say that the majority of these strategies are, like you said, a covered call strategy. And that means in its sort of simplistic term, that you own the underlying asset, be it a stock or be it an ETF, and you sell a call option on that underlying asset. And so by doing that, you receive a premium for that. Um, that caps your upside to that underlying ETF or stock in the form of the premium you receive, but you are still exposed 100% to the downside of the movement and price of that underlying asset. So that that that's a very popular strategy for people that are again looking for yield. So, what Yield Boost does is a different version of that, slightly more efficient version of that in our view, where instead of selling a call option, we sell a put option. So that's a bit more efficient in our book. And then simultaneously, we buy a put option. So we complete the income generation part of the spread, um, which is selling that put option to generate income, but we simultaneously buy a put option, which provides some downside protection. So that's called a put spread strategy where you're selling one option, you're buying another, and then you're capturing the exposure within that spread.

SPEAKER_00:

So I think this is actually incredibly important. Um, because in most investors' minds, they tend to separate yield from the underlying value of the asset. Right. So I remember in 2008, a lot of managers got in trouble because they said, well, it's money good because I'm still getting my yield, and then the underlying asset blew up. In the case of yield boosts, you are having some insurance protection with that put that you're buying, which is what these cover call strategies do not have. Exactly.

SPEAKER_01:

So in in simple, in simple terms, um, it's a design improvement. It allows for that element, which of course is is designed to provide some protection against the obvious weakness of covered calls, which is the income is nice typically, but you're giving 100% exposure to the downside.

SPEAKER_00:

Aaron Powell So is it fair to say that over a long enough market cycle, that type of approach would have better risk-adjusted total return than a cover call only strategy?

SPEAKER_01:

Um it's always difficult to say in generality, but yes. I mean, typically what we find is when we observe periods of actual realized volatility, in some cases the realized volatility of the yield boost strategy is lower than the actual underlying, let's say it's a it's Tesla, for example, um, then although yield boosts generate such high yields, we sell options on underlying leveraged ETFs. That's the the way that we're able to generate the kind of yields that you see. And while leveraged ETFs are volatile, when you put it within the confines of the put spread strategy, the actual realized volatility numbers can be even lower sometimes than the stock itself. Um so again, depends on the period of time you measure. Um, but that spread, because it's a defined outcome, um, can limit risk sometimes less than the actual underlying itself, ultimate underlying.

SPEAKER_00:

So as some of the uh individual yield boost funds for a second here, um, because the distribution rates are pretty eye-popping. I mean, here's AMYY, which is on AMD, 100% plus distribution rate. I know you do the announcements uh weekly, usually on Wednesdays. Uh how are you getting those rates that high?

SPEAKER_01:

Well, I mean, the secret is that um if you take a stock like AMD, um, there will be very liquid options market on AMD. So if you just sell an option on AMD, you receive a premium. And that premium, the value of that is derived from its what we call implied volatility, which is a number. So let's, for argument's sake, say the implied volatility is 60 in the market. Well, if you sell exactly the same option on a two times leveraged AMD ETF, then all things being equal, the premium that you receive will be two times that of the unlevered underlying. So instead of 60, it would be 120. And so automatically you're capturing two times the premium as if you sold an option on the stock. So when you capture two times the premium, that's two times the amount of income that you can distribute out to shareholders. And because you're capturing so much premium, then we use some of that premium to buy uh downside protection. And that's effectively the strategy. So it comes from selling options on the underlying, but if you sell options on a leveraged underlying, then you can generate two times the premium if it's a two times ETF, or three times the premium if it's a three times ETF.

SPEAKER_00:

Uh is it fair to say, again, speaking about generalities, that when you're looking at the options market in the levered space, these it's there's a lot more inefficiency. So you the the premiums are are m more mispriced, which is the benefit.

SPEAKER_01:

I'm not sure whether it's uh inefficiency, because you know, at the end of the day, it's an instrument that can be arbitraged. So if there's a mispricing, people will arbitrage that difference. I think it might be fair to say that in some cases there's less liquidity or the options market is less developed than the equivalent for, let's say, an underlying stock. And in that case, the benefit of doing something like a yield boost strategy is by using bespoke option options contracts that are negotiated directly with brokers to generate premium, as opposed to just being limited to trading listed options. Um, so there's more flexibility that we have as an active manager um within that space, but ultimately, to the extent that there's a mispricing, um, it's not in a sort of traditional sense. It's more an opportunity, an arbitrage opportunity for people.

SPEAKER_00:

You hear this term often nav erosion. Um I know one of your competitor fund families uh is getting a lot of heat for some of the things that's happening on that end. Uh tide is maybe turning on some of these types of products that are not as thoughtfully designed, I think, as the yield boost strategy is. Um let's talk about what nav erosion is and maybe what why investors are underestimating the potential of it in a more normal market, which isn't just going up the way it's been going up.

SPEAKER_01:

I mean, it's just a it's just a catchphrase, if you will, for what we talked about with covered call. So it's something that um is very much synonymous with covered call ETFs. And again, just simply goes to the to the fact that you're capturing um the premium, but you're capturing all the all the downside. So when you sell effectively the upside away, you get a premium for that, but in return, the exposure is 100% to the downside. So therefore, if the underlying goes down, then the value of that ETF goes down, aka the nav goes down. That's what people are talking about specifically when they talk about nav erosion. So it's really just something that um is present with any strategy where you don't have a downside protection with options, but particularly with covered calls.

SPEAKER_00:

Um okay, so so as far as the fund suite, you've been you know uh at a toward pace of launches, right, on single stocks. Um let's talk about the fund lineup currently. And then I want to touch on the broad-based averages, you know, the cues, the the uh SP type yield boost uh plays there.

SPEAKER_01:

Yeah, I mean, we we've really expanded um quite significantly the offering for yield boosts. So I think we're up to 14 or 16 funds now. Um and it was only a few weeks ago it felt like we were just adding the tenth fund. So the the range is expanding quite significantly. We've just added new funds um to the lineup, including Mara, a yield boost Mara, uh yield boost IONQ, um, yield boost SMCI, yield boost um MSTR, and others. So the the range is really expanding quite significantly. And I would say that what's interesting is you know, all of these have different sort of yield profiles. And so the more volatile the underlying, typically, the the more um yield that is able to be generated. So you might have something like a Coinbase, um, yield boost Coinbase, which is generating around 150% um per annum. And then you have a new a newcomer like uh Yield Boost Mara or Yield Boost IonQ, which is also up around that 150% level. And then you have something more diversified, like you said, like the uh yield boost spy, yield boost um triple Q, and those are around the 50% level. So a lot a lot less yield, but um you know more diversified than the than the single underlyings.

SPEAKER_00:

Uh the largest one of the fund family is the uh Tesla one T S Y Y. You can see that on the bottom of the screen. And then the others obviously are getting some good traction. Um maybe just for those that are curious about the uh the newer ones like the meta uh and uh MSTR, the smaller ones in AUM, talk about liquidity. Um if there's concerns that investors should have when they look at smaller funds on AUM.

SPEAKER_01:

I mean, I think um there's always an element of people looking at the number of shares that are traded on the screen and you know having concerns about a fund that has light volume as a as opposed to a fund that has clearly significant volume. I think the thing to always remember is with ETFs, that is um ETFs are open-ended. So that means we can manufacture shares on demand. So, in other words, if you see um, let's say a very, very small amount of shares trading on the exchange, you might see an average daily volume of, say, a thousand shares. Somebody wants to put an order in for 10,000 shares, then it's not like a stock where that order can't be completed or would have to be worked in over several days. It goes to the market maker who would come to us, we create more shares, or they would technically create more shares, um, and then use those to sell to the customer that's looking to buy 10,000. So the supply and demand of these ETFs expands and contracts um accordingly. So when you see an ETF the small, you know, don't ever make the mistake of thinking that that doesn't equal liquidity because with ETFs, um, they're able to expand and contract. I think that's kind of goes back to the very dawn of ETFs, and you know, we're still talking about it to this day, that um the trading volume does not equal the liquidity when it comes to ETFs.

SPEAKER_00:

The thing about your product suite is that there's a product for pretty much anyone and everyone, right? Um so there will be some that are listening to this that uh may not be super into yield boosts. A lot of people will be into yield boost, but again, I'm still looking for high income. Uh you have more than just yield boosts. So I want to touch on HIPS here uh because I think this is really interesting, fun, good history.

SPEAKER_01:

Uh, we should yeah, so HIPS is um a another high income ETF, but it's not a bond ETF. And when we say high income, we just mean something that um would, by all traditional metrics, be uh high yielding. So HIPS is around 10% per annum. And HIPS invests in pass-through securities. So pass-through securities are a section of the market where you have REITs, you have closed-end funds, you have BDCs and MLPs. All of these, all of these different securities, um they all have in common the fact that they don't pay corporation taxes. So they distribute by law substantially all of their income to shareholders. So they're they're a good asset for those people looking for income and consistency of income. So HIPS is a is an interesting product because it it's designed to produce income. Um but what I think is different uh about HIPS is not only that it has exposure to those four underlying asset classes within the pass-through security world, but it pays a fixed cash distribution of 10.75 cents per share per month. So that means that when you buy it, you're effectively locking into uh the yield at that time, which can be attractive to a lot of people who were looking to budget a certain yield number or add a certain yield number to their portfolios. So HIPS is an interesting asset class. And I think um it's it's almost especially interesting today because the performance of HIPS this year hasn't been that great. And the reason for that is all the concerns in the market around private credit. Now, HIPS, of course, doesn't hold private credit, but it holds BDCs, which can have exposure to private credit. And I think it's just a reminder that with first brands and the bankruptcies that we're starting to see in the private credit world, this was an area of the market where funds like HIPS would have traditionally competed with or did do compete with, and you know, people were getting similar yields to HIPS but in a private credit from a private credit structure. And one of the advantages that was that was always claimed was that you didn't have a mark-to-market nav. And therefore it was easy to say, okay, well, I'm getting 10%, and I don't have volatility in my nav. Well, of course, that's not true. It just meant that you didn't have a daily mark-to-market nav, as with any public security. And I think now what we're seeing is is just a lot of interest in the public version of things like HIPS, where people are really starting to worry about private credit and worry about the exposures that are hidden in some of those funds, knowing that they're locked up. So I think again, the cycle is coming back to the value of liquid, transparent securities that people can get in and out, you know, whenever they choose, not whenever the the manager chooses.

SPEAKER_00:

I was gonna say, you know what's interesting about that, and I'm um I've talked about private credit myself on the leave agreement side. The um I was reminded the other day that in 2008, during the GFC, we obviously saw a bunch of banks go under, but there's like maybe only one BDC that went under. Right. Um now, obviously Apples and Orange is much bigger market now, but um the concerns around uh mass uh the sort of selling the the throwing the baby out with bathwater type thing, it it probably is not gonna be that type of dynamic at all here, right? I mean, you're not gonna have the kind of widespread defaults uh because there's a lot more transparency when it comes to BDCs in general than a lot of people realize.

SPEAKER_01:

Aaron Powell Well, I mean, I think it's too early to say because um you know BDCs have investments or have exposure to all sorts of companies. And the the fear is with the private credit market more broadly that you had bankruptcies that occurred um seemingly out of nowhere, that um has affected very big banks, very sophisticated lenders who purportedly should have known better. But you know, without going into the specifics of those particular transactions, the general fear, if you want to make the GFC kind of analogy, is that like with mortgage-banked securities, private credit started as you know, a genuine uh high-quality asset class where managers would find deals of good quality, with good terms, um, good quality lenders, and you know, offer those within specific funds. What happened is that it almost became a victim of his own success, whereby you have tons of capital flowing in, and as capital fell uh kept coming in, then managers had to deploy that capital to more and more deals. And I think the concern has been that the quality of those deals therefore deteriorated over time because just aren't that many high-quality deals in the market. So long story short, um, clearly it's way too early to sort of claim anything more than just an era of or or a notion of uh suspicion and or of um concern with this, but this is what you're seeing manifesting at the moment in some of the BDC market, is that while the these companies are not private credit uh direct themselves per se, um, but clearly have exposure that to that sector.

SPEAKER_00:

Yeah, and look, I mean, to the extent that investors are overreacting to it, uh, it's a buying opportunity. I think it's that's that's over the keys to this. Um final thoughts here, Will, for those that are looking to put together a portfolio of income ideas, not uh investment recommendations here, but uh what do you typically see? Mixture of some yield boosts, mixture of some bonds, some hips, some preferreds, like you know, how should one think about creating a real diversified, robust portfolio from a yield perspective?

SPEAKER_01:

Yeah, but I I I think um if you want to think about it from the pure yield perspective, then you know there's never been a better time to be an investor in the yield space. Um, you have a huge amount of products and you have very, very precision tools that you can use within your portfolio. So if you're looking purely for yield, you can dial that up or down seemingly as much as you want. Um if you use products, say on the yield boost side, you can dial up that yield very significantly. If you're looking for preservation of capital, then clearly there are instruments that enable you to do that on the money market side, treasury side, um, that will do that, but offer you minimal amount of yield in return. So I think the basic um use case for a HIPS, for yield boost, for anything that generates, let's call them high yields, is more about risk-adjusted returns in a portfolio. So put simply, you can use instruments like this to increase the amount of risk, um, in increase the amount of yield, I should say, in a portfolio, and marginally increase the level of risk, or in some cases maintain a same level of risk because the risks are uncorrelated or have a low correlation. So in the case of something like bonds, you're not just doubling down on duration risk by using higher and higher yielding bonds. Um, you're taking a different type of risk or introducing a different type of risk into the portfolio, be it options, be it something like past three securities. And so by combining those together, you can have a yield portfolio that, you know, whether it's a target yield or just a level of yield that you're comfortable with, which is diversified across either more risky yielding products and lower risky yield products. But there's never been a better time to put these kind of structures together and to have um the flexibility um and the optionality, no pun intended, uh, in terms of putting that together.

SPEAKER_00:

Again, folks, for those that are here for CE Credit, I will email you afterwards. Uh, if you want to learn more about Granite Shares' offerings and Yield Boost in particular, granite shares.com. Will, any uh any parting thoughts here?

SPEAKER_01:

Yeah, I think um today is Yield Boost Day, we call it, uh, affectionately here at Granite Shares, which means that um we publish the distributions on this day on every Thursday of every week. So Yield Boost funds are all weekly payers, which means that um there's a weekly distribution. So today is the date that we publish that distribution. The best way for anybody to get that um is to follow Granite Shares on X or a Yield Boost account on X, the Yield Boost ETFs, and you'll be uh delivered that sort. First thing in the morning in terms of the distributions for each fund for that week, and obviously then be able to make a decision as to whether you you reinvest um for the next week or deploy elsewhere. So you'll boost ETFs on X, Grant Shares on X, and of course the GrantShares.com website, um, just for all information related to the funds.

SPEAKER_00:

Appreciate those that joined this uh podcast slash webinar. And hopefully we'll see you all in the next uh next webinar. Thanks, Will. Appreciate it. Thank you. Cheers, everybody, I'm not sure.

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Michael A. Gayed, CFA

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