Millions of investors use stocks, mutual funds and ETFs to generate regular predictable income from their portfolios. Most stocks make their dividend payments quarterly, which may or may not make sense for someone looking to get a paycheck a little more frequently. A number of funds, including closed-end funds, have stepped in and offer a monthly distribution structure. In the open-end fund world, that exists mostly on the fixed income side, but you'll still find issuers, including Global X and WisdomTree, that offer monthly dividends from their equity funds.
Now, we've got a fund that pays out on a weekly basis. That's right, you can get a paycheck from your portfolio every Friday!
The SoFi Weekly Income ETF (TGIF) invests in a combination of investment-grade and high yield bonds. The portfolio will target a duration of less than 3 years, with the goal to reduce interest rate risk relative to longer-dated bonds.
How Does TGIF Work?
While the diversified bond portfolio is fairly straightforward, it helps to understand how this ETF exactly is going to pay a dividend every week, especially if bonds generally pay out dividends or interest much less frequently. The answer is part portfolio composition and part guessing game.
Since TGIF is actively-managed, it's able to structure its portfolio in a way in which there is a continuous maturing of notes within the portfolio. In that way, there can be a staggered distribution schedule that keeps bond payments coming in on a much more frequent basis.
But even that may not be good enough. Bonds typically have payment dates either in the beginning or the middle of the month, not quite good enough for a weekly payout schedule. To address this, SoFi does a bit of forecasting. It looks at what the expected payment schedule and amount would be for all of the portfolio's holdings. From there is creates a forecast of how much the fund would be expected to earn and then breaks it down to what could be consistently paid out on a weekly basis.
Since its inception in October 2020, TGIF has maintained a steady $0.05 per share weekly distribution. In reality, the fund probably earns a little more of a little less during any given week, but the current distribution schedule is designed to smooth out some of that volatility and end up all square in the end.
As mentioned, TGIF is actively-managed, which means it's going to come at a higher price. Its expense ratio of 0.59% isn't egregious, but it certainly won't be on the cheap end of fixed income ETFs. The draw, of course, is the weekly distribution feature, so cost isn't necessarily the primary consideration.
TGIF holds just over 100 different securities, but the fund's top holdings come from a number of familiar names, such as Ford, Delta Air Lines, Western Digital and Qorvo.
The current distribution schedule translates into an annualized yield of about 2.5% based on the current share price.
TGIF's weekly payout schedule is a bit of a unicorn in the ETF space. The shorter duration coupled with the mixed credit profile puts this fund somewhere between a short-term and intermediate-term investment-grade corporate bond fund in terms of risk. The 2.5% yield, however, will be fairly attractive and it happens to fall right in between what you'd typically find in an investment-grade and a junk bond fund.
The weekly payout schedule is, obviously, the big attraction and the reason that investors will choose this fund in the first place. It's certainly not cheap, so you'll have to decide if the cost of ownership is worth getting a more frequent dividend check.
Is there a demand for this type of product? On the surface, it would seem the answer is yes, but demand so far has been tepid. It only has about $18 million in assets and trades just a couple thousand shares a day on average. That makes trading costs high and a potential drawback for anyone looking to make an investment.
Is TGIF worth investing in? If the idea of a weekly dividend from your portfolio is appealing or needed, I don't have a real issue investing in this fund. But it's not necessarily cheap and there's always the possibility that the $0.05 per share distribution could be lifted or cut over time.
But TGIF is undoubtedly a unique fund and could be attractive for those looking for a steady paycheck.