Catering to the short attention span of retail investors in Michael Saylor’s bitcoin (BTC) treasury company MicroStrategy (MSTR), a new fund manager is advertising weekly payouts plus extra leverage.
Although monthly payouts have been available in YieldMax’s ETF MSTY since February 2024, Roundhill wants to increase that cadence 4X with its upcoming fund, MSTW.
In addition to weekly payouts, the Roundhill MSTR WeeklyPay ETF will also leverage synthetic derivatives to hopefully surpass MSTR’s calendar week price return by an extra 20%.
To accomplish these feats, the new ETF will obtain investment exposure exceeding the net assets in its fund with lots of leverage.
Investors will suffer magnified losses in bearish market conditions: at least 1.2% in losses for every 1% weekly decline in the price of MSTR, plus the fund’s operating and financing costs, and trading commissions.
In its Form N-1A registration statement with the Securities and Exchange Commission (SEC), Roundhill admits that it will buy swap agreements to synthetically derive exposure to MSTR.
These exotic agreements will add credit, counterparty, and valuation risks that common MicroStrategy shareholders don’t have.
Read more: Is Coinbase holding MicroStrategy’s bitcoin?
MicroStrategy amplified with leverage and risk
Moreover, swap agreements have a mere fraction of the liquidity of MSTR itself, meaning that “it may be difficult or impossible to buy or sell a position.”
This “may also make its positions more difficult to liquidate, and increase the losses incurred while trying to do so.”
Finally, the fund isn’t a passive price-tracking fund but rather an actively-managed ETF whose performance “reflects investment decisions that the Adviser and/or Sub-Adviser makes for the Fund.”
Despite all of these risks, reactions to the MSTW announcement on social media have been mostly positive. Members of various communities, like Irresponsibly Long MSTR, re-broadcast the press release.
The new ETF was supposed to start trading in May, and investors still expect it to launch soon.
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