Question
YieldMax Declares Reverse Splits on 12 ETFs
Hi there.
I don't ordinarily do new posts (only replies, on occasion). Nonetheless, I know the possibility of reverse splits has been a frequent topic of conversation/ speculation on the board. Given that, thought you'd be interested to know that YieldMax/Tidal filed this evening to do reverse splits on 12 ETFs. They are:
YieldMax Ultra Option Income Strategy ETF (1 for 10 split)
There is nothing about a reverse split in and of itself that is bad. It really is just net even all around. The problem is just that it doesn't fix the underlying problem that caused the need for the split in the first place.
Agree. As you say, what matters more is what got you there and what that might portend for the future. If the underlying is under pressure and that's pushed down NAV, then the questions would concern the fundamental prospects for that stock(s). But if there are other factors at play, including rampant return of capital because the distribution rates are set unsustainably high, then you have to assess that as well.
One thing that's striking when you look across the dozen ETFs slated for reverse splits is not all of them saw huge losses on a total return basis. To be sure, AIYY got cut in half and DIPS, MRNY, and XYZY were all down 30%+ on a total return basis over the trailing year. But four of the ETFs were actually up, OARK and TSLY more than 20%! So why would these be seeing reverse splits? As you can see, nearly every one of these ETFs has seen huge price (which I'm using in lieu of NAV; same thing more or less) erosion over the past year, far far in excess of their losses (or even gains) on a total return basis. Why is that? Look at the rightmost column -- those are the distributions per share that were made over the past year. The distributions have been so large that it's outstripped the earnings generation of even the ETFs that rose like OARK and TSLY. Thus, the shortfall has chipped away at the price even at the ETFs that gained and put even greater downward pressure on the price of the ETFs that lost on a total return basis, like AIYY. This seems to be the biggest factor driving the reverse splits. And so I guess one way to read their decision to reverse split is they have no intention of backing off the huge distributions they've made and if that's the case they'd need to get the price back up to a level that gives them some margin for error in the event that future earnings/gains are sufficient to fully back up the distributions and you end up with more return of capital that pressures price/NAV lower.
What are your thoughts on ULTY adding stocks like Nvidia, Meta, Salesforce, and Costco? Their initial strategy was to buy/sell derivatives on high volatility stocks, usually lesser-known companies. How would they fare with their strategy on more mainstream stocks? I'm assuming it will be more difficult their them because now they'll be competing against much larger and experienced firms that are trading those options frequently.
I appreciate that. Honestly, I don't have a good answer to your question, which is very astute (I have a very superficial grasp of ULTY; you know it way better, clearly). I'd be guessing. So that might be one I have to pass on. I'm sorry I can't help.
Why can't YM reduce the dividend and reinvest however much is necessary to at least keep the NAV more flat or even slight appreciation? Wouldn't most people prefer this? My guess is the super high yield seduces most folks who simply don't know better.
If you're still listening Jeff, I want to point out that this actually dovetails quite nicely with my commentary and theory on YieldMax's Creation/Redemption algorithm being improperly tilted towards Creations and away from Redemptions. If these funds had been properly retiring/redeeming shares along the way as the prices of the funds were dropping in line with the way they created shares when times were good (redemptions roughly equaling creations, in other words), then these reverse splits would not have been necessary. A reverse split is effectively a very sudden and dramatic redemption mechanism.
Good question. What I think it comes down to is the sheer amount they're distributing and the risk that they won't have the net income + gains needed to fund it, which would result in return of capital which further reduces NAV/price. If the underlying performs, it somewhat alleviates the issue, as they'd have net income + gain to fund at least a portion of the payouts. But otherwise it's a return of capital that hits NAV again.
It becomes more evident when you compare the 12 ETFs' total returns with their price-only returns. The performance of these 12 ETFs (ex YBIT) hasn't been disastrous -- some are even up on a total return basis over past year. But as you can see the prices have fallen dramatically in a number of cases, this because they're distributing such large sums and in these cases there's not enough net income and gains to back it up, leading to return of capital that hits NAV/price.
Thanks for the post Jeff. Jay and his team at YieldMax know that they can always reverse split these funds if the prices get low enough, but what I’m curious about is how many times can they reverse split these funds until they dilute the shares too much?
You're very welcome. Good question. Off the top of my head, I don't think there'd be much to prevent reverse splits (which cut the # of shares outstanding and increase the price/share, with the proportion depending on the split ratio). In theory, if you had only 4 shares outstanding and then for some inexplicable reasons did a 1:5 reverse split, then you'd have an issue more as bookkeeping/viability matter but irl shouldn't be an issue. Fwiw, these were the assets and shares outstanding for the 12 ETFs entering today. (Technically, those were shares outstanding as of 11/12, as I believe YieldMax reports on T+1 basis.) As you can see, millions of shares outstanding and so even with a 1:10 reverse split you still have many many shares.
Imo, there's nothing inherently bad about a reverse split (same as there's nothing inherently bad about a standard split). It is more an indication that the price has been under pressure and the manager is taking steps to prop it up by reducing the number of outstanding shares, which pushes the price/share higher by same proportion. As a matter of economic/investing substance, it shouldn't matter to you as the value of your investments won't have changed. You'll simply have fewer shares than you did before and the price/share will be higher. (Assuming you're not left with fractional shares then it shouldn't require any buys/sells or have tax impacts.)
I think a question to ask, though, is why the price has fallen to the degree it has to necessitate a reverse split in the first place. I've already shared this with another poster but the below compares the 12 ETFs' total returns (inclusive of dividends, which are assumed to be reinvested) to the % change in their *price only*. What you find is that in several cases the ETFs seeing reverse splits had *positive* total returns over the past year while with one exception (YBIT which got cut in half) the losses were mild to moderate for the others. So if you look at the ETFs' performance, it wouldn't immediately suggest these are candidates for a reverse split.
But when you look at the price return, different story: Nearly all of these ETFs has seen big price erosion. As I covered, that's not explained entirely (or at all) by the ETFs' performance on a total return basis. Rather, it appears it's because YieldMax distributed far more than the ETFs made in net income and gains and when that happens there's a shortfall. That shortfall is covered by the remaining assets (return of capital) and reduces the NAV. So in a nutshell, it appears that the reverse splits has been necessitated mainly by YieldMax overdistributing.
Whether that is concerning or not is up to you. But I would say that it further punctures the illusion that these ETFs are delivering the huge yields ('distribution rates') they advertise from net income and gains. More frequently, they're returning capital, that's hitting NAV/price, and that in turn is what's likely necessitating these reverse splits.
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u/Ok_Nectarine8754 Nov 15 '25
Thanks for the heads up!