Forget FAANG. The top companies dominating markets from 2023 onwards are the so-called Magnificent Seven: Apple Inc. (AAPL), Amazon.com, Inc. (AMZN), Alphabet Inc. (GOOGL), Meta Platforms, Inc. (META), Microsoft Corporation (MSFT), NVIDIA Corporation (NVDA), and Tesla, Inc. (TSLA).

These seven giants hold commanding positions in both the S&P 500 and Nasdaq-100 indexes. They represent a mix of sectors: technology (Apple, Microsoft, NVIDIA), communication services (Meta, Alphabet), and consumer discretionary (Amazon, Tesla).

If you’re looking for exposure beyond traditional index funds, U.S. investors have a couple of options. The Roundhill Magnificent Seven ETF (MAGS) offers a straightforward play on these stocks, while the YieldMax™ Magnificent 7 Fund of Option Income ETFs (YMAG) is designed for income seekers, boasting a jaw-dropping 72.45% distribution yield as of December 9—yes, that’s not a typo.

Why is that yield so significant? Because dividends from the Magnificent Seven themselves are meagre. Microsoft and Apple offer modest payouts, NVIDIA, Meta, and Alphabet pay only token amounts, and Amazon and Tesla skip dividends entirely. YMAG generates its yield through a complex options strategy.

Canadian investors, however, face a different challenge. You can buy Canadian Depositary Receipts (CDRs) for Magnificent Seven exposure or, if you want to combine income, you could convert to USD and invest in YMAG—or hold 100 shares of each stock to sell covered calls, a highly capital-intensive strategy.

But there’s another way. Enter the Purpose YieldShares ETFs. Let’s explore how they work and how you can combine them to build your very own Magnificent Seven monthly income portfolio.

What is Purpose YieldShares?

The Purpose YieldShares lineup is designed to provide a unique blend of income and exposure to blue-chip U.S. stocks, tailored specifically for Canadian income investors. Here’s how they work:

1. Start with $100 in capital invested in the underlying stock.
2. Sell covered calls on 50% of the portfolio, capping some upside potential in exchange for generating monthly income.
3. To offset the capped upside, the ETF borrows $25 on margin, creating a 1.25x leveraged exposure to the stock.
4. Like CDRs, these ETFs are hedged to the Canadian dollar to reduce currency volatility.

The result? You gain exposure to the stock’s price appreciation, combined with a monthly income distribution. Here’s a handy chart from Purpose on the optimal conditions for this strategy:

These ETFs come with a 0.40% management fee, but the total MER typically lands between 1.7% and 1.8%. While this seems high, remember—it includes the cost of borrowing, as margin leverage doesn’t come cheap. Purpose gets margin loans at institutional rates, better than what retail gets.

Why use these ETFs instead of going DIY? Well, because selling covered calls on individual U.S. blue-chip stocks can be prohibitively expensive and come with restrictions. For example:

• Berkshire Hathaway (BRK.B) trades at $465 per share as of December 9. To sell a single covered call, you’d need to own 100 shares, requiring $46,500 USD in capital.
• To leverage your exposure by 1.25x, you’d need to borrow on margin, often at higher rates than Purpose can secure as an institutional investor.
• Worse, this strategy can only be executed in non-registered accounts.

But with the Berkshire Hathaway YieldShares ETF (BRKY), you bypass these hurdles. You can hold shares in a Tax-Free Savings Account (TFSA) or other registered accounts, earning a 4.28% distribution yield, paid monthly. As of November 29, the ETF’s one-year total return of 34.58% closely mirrors the performance of the Berkshire Hathaway CDR.

How to make the Magnificent Seven income portfolio

You can create your own Magnificent Seven Income Portfolio using Purpose YieldShares. The lineup includes:

1. Purpose Meta (META) Yield Shares Purpose ETF (YMET)
2. Purpose NVIDIA (NVDA) Yield Shares Purpose ETF (YNVD)
3. Purpose Microsoft (MSFT) Yield Shares Purpose ETF (MSFY)
4. Purpose Apple (AAPL) Yield Shares Purpose ETF (APLY)
5. Purpose Alphabet (GOOGL) Yield Shares Purpose ETF (YGOG)
6. Purpose Tesla (TSLA) Yield Shares Purpose ETF (YTSL)
7. Purpose Amazon (AMZN) Yield Shares Purpose ETF (YAMZ)

Currently, YMET, YNVD, and MSFY don’t have distribution yield metrics available yet. However, the rest do. If you equal-weighted a portfolio with the following distribution yields:

• YTSL: 12.36%
• YAMZ: 8.52%
• APLY: 6.25%
• YGOG: 7.15%

The average distribution yield as of December 12 would be 8.57%, with monthly payouts.

Purpose YieldShares versus YieldMax ETFs

You might be thinking, “Wow, the Purpose YieldShares Magnificent Seven combination pays a much lower yield than YMAG’s 72.45%—why not just convert to USD and buy YMAG?” Good question. For several reasons, I’d personally stick with Purpose YieldShares.

First and foremost, the underlying strategies differ significantly. The YieldShares ETFs do not use a synthetic strategy. Instead, they own the underlying stock and implement a straightforward covered call approach combined with modest leverage through margin. This approach prioritizes total return over pure yield, as seen with examples like BRKY, where upside potential isn’t heavily capped.

On the other hand, YieldMax ETFs like YMAG employ a synthetic covered call strategy. Instead of owning stocks, they combine short puts, long calls, and short calls, using Treasuries as collateral. The result? Near-zero upside price appreciation and full downside exposure. That’s where the double-digit yield comes from—it’s not magic or a free lunch.

YieldShares ETFs therefore aim for a balance of price appreciation and income, while YieldMax focuses exclusively on yield at the expense of growth potential. For investors prioritizing long-term returns, YieldShares currently outperform YieldMax, as seen below:

Distributions from YieldShares ETFs are far more tax efficient. They are primarily classified as capital gains with a smaller portion as return of capital (ROC). In contrast, YieldMax distributions are taxed as ordinary income, making them less attractive for Canadian investors.

If you need a summary, check out this handy comparison chart that outlines the key differences. For Canadian investors who value balanced returns, predictable income, and tax efficiency, I personally think Purpose YieldShares are the better choice.