Advisors have long faced a frustrating trade-off when pursuing growth and income for clients: either accept modest current yield while maintaining full market exposure or sacrifice meaningful equity upside for higher income. Traditional tools—such as covered-call strategies or heavy allocations to dividend-paying sectors—can deliver results but often with significant compromises.
A newer strategy seeks to eliminate much of the need for concessions by utilizing dividend futures contracts to enhance income while maintaining substantial equity exposure. The Pacer Metaurus US Large Cap Dividend Multiplier 400 ETF (ticker: QDPL) aims to provide four times the S&P 500’s dividend yield with approximately 90% of the index’s price exposure, while the Pacer Metaurus Nasdaq-100 Dividend Multiplier 600 ETF (ticker: QSIX) seeks to deliver six times the Nasdaq-100’s dividend yield with similar equity participation.
In an interview with The Wealth Advisor’s Scott Martin, Rick Silva, CIO, Partner, and Senior Managing Director at Metaurus Advisors, a sub-advisor to the Pacer ETFs funds, discusses how QDPL and QSIX use futures markets to recapture dividends that other derivatives strategies surrender.
The Income Challenge in Equity Investing
Many income-oriented equity strategies rely on predictable playbooks—writing covered calls to harvest premiums or concentrating in sectors with historically high dividends. Both routes come with costs.
“When you look at those two alternatives, as you move from the growth spectrum to the income spectrum, you would expect to give up some overall total return participation,” Silva explains. “But when you look at the actual trade-off for the amount of income you’re getting, how much market participation are you giving up? It can be pretty punitive.”
Consider the 70-year-old retiree taking distributions—a client facing decades of potential longevity who needs substantial current income but cannot afford to sacrifice long-term growth potential. Traditional approaches often fail to serve such clients well, requiring their advisors to choose between inadequate income or compromised growth prospects.
Rather than accepting conventional limitations, Pacer and Metaurus developed a strategy that fundamentally reimagines how equity income can be generated. “Very simply, in [QDPL], we’re trying to reimagine the S&P 500 from a growth benchmark to a growth and income benchmark while still capturing as much of its overall total returns as we possibly can,” Silva says. “Using the instruments in the portfolio, we’re able to deliver that total return with a different mix of growth and income.”
Dividend Futures: The Missing Piece
Where do dividends go when other derivatives strategies strip them away? Understanding the answer reveals significant opportunities. Most equity derivatives—options, futures, and structured notes—link to price returns only, effectively abandoning dividend income that must flow somewhere else in the financial system.
“It’s like science—it doesn’t just disappear into the vapor; it goes somewhere else,” Silva notes. “The market developed as a way for institutions that are accumulating net long exposure or net short exposure to be able to trade that and risk manage it. And it evolved into a futures market.”
Annual dividend futures contracts, first listed in the United States in 2015 but with 30-year institutional origins, allow direct exposure to dividend streams separate from price appreciation. The contracts illuminate equity price formation in ways previously unavailable to most investors.
“The S&P 500 at any moment in time reflects the market’s risk, discounted present value of all of its future expected cash flows. That sounds really smart, but that is a completely useless statement because I don’t have any visibility to how it got to 6,400,” says Silva. “Well, now I do.”
By trading dividend futures individually, investors can deconstruct equity returns and rebuild them with enhanced income components, creating transparency in how market valuations incorporate future dividend expectations.
How QDPL Reconstructs the S&P 500
QDPL’s approach sidesteps the usual sector rotation or options-writing playbook. Instead, the strategy unbundles the S&P 500 into its component parts and reconstructs them in different proportions through a precise formula.
Approximately 85% of assets replicate the S&P 500’s weightings across sectors and individual securities, maintaining familiar holdings and full diversification. The remaining 15% serves as collateral for three-year dividend futures exposure covering 2025, 2026, and 2027 dividend payments—with no leverage employed.
The result: a strategy that seeks to provide approximately 90% exposure to S&P 500 price movements and four times the dividend yield. The QDPL dividend multiplier approach is designed to capture 90–95% of the index’s total return while targeting a reduction in volatility to about 85% of the market’s level.
“We’re going to de-risk it and make it more efficient for you, but we’re really trying to capture that total return,” Silva points out.
As of August, monthly distributions were generating upwards of 5% annually—four times the S&P 500’s actual dividend yield. The tax efficiency might particularly appeal to clients with taxable accounts; in 2024, such investors retained more than 90 cents of every distribution dollar after taxes.
Extending the Strategy to Technology
QDPL’s success naturally led to questions about applying similar methodology elsewhere. The September 2024 launch of QSIX tackles the particular challenge of technology stocks, where traditional income approaches often fall short.
“How do you do it in technology? You can’t concentrate any tech stocks that pay a high dividend,” Silva observes. “So, you’re really only down to covered calls on primarily technology-based indices.”
The Nasdaq-100’s lower dividend yield—about 75–80 basis points—requires a six-times multiplier to generate meaningful income, hence QSIX’s “600” designation. Recent dividend initiations by companies including Salesforce, Meta, and Google immediately benefit the strategy since it enhances yield at the market level rather than requiring individual companies to meet dividend history requirements.
The dividend multiplier approach to growth in income is “very, very complementary. It’s just a new way to think about it.” Silva says. “You can pair it with other covered-call strategies and optimize your total return profile, your risk profile.”
The Systematic Approach
Both strategies follow a disciplined methodology that removes guesswork from the equation. Contract rollovers occur on predetermined schedules, with new three-year exposures replacing maturing contracts each December. The systematic construction eliminates manager discretion in favor of consistent execution.
“When one contract matures, we rebalance the portfolio. We add the new three-year contract,” Silva explains. “I have other strategies where we’re a lot more dynamic and active in these markets trading the equity yield curve. But this one is really straightforward.”
The predictable structure is designed to provide advisors with reliable income streams that adjust based on underlying dividend growth rather than market-timing decisions. As company dividend payments increase over time, distribution amounts may rise proportionally—potentially creating growing income streams alongside growing capital bases.
Portfolio Integration and Complementary Uses
Silva views the dividend multiplier ETFs as complements to, not replacements for, other income strategies. They can pair with covered-call funds, high-yield bonds, or dividend-focused equity strategies to create potentially more balanced income streams.
“I’m not so hubristic as to think that this is the only thing people should own. We think it has a spot,” Silva acknowledges. “There’s lots of different ways to use it, but we think it is unique, we think.”
The complementary nature becomes especially valuable when constructing income-focused portfolios across the risk spectrum. Traditional approaches frequently offer limited ways to increase income without dramatically altering risk profiles or tax efficiency—particularly problematic in taxable accounts where income tax consequences matter significantly.
Risk Management Through Volatility Reduction
The futures-based foundation of QDPL and QSIX delivers an unexpected benefit: natural volatility reduction. Both dividend multiplier ETFs employ three-year dividend strip exposure that is constructed to provide inherent risk reduction compared to full equity exposure, with dividend futures contracts exhibiting approximately one-fifth the volatility of underlying equity markets.
“They have a linear payout. If they go up and down with the market, they go up and down with much less volatility,” Silva explains. “So, that’s how we get the risk reduction in the strategy.”
The distinction between futures contracts and options proves crucial here. Unlike call options that create asymmetric payoff profiles with capped upside potential, dividend futures provide linear exposure that moves proportionally with underlying dividend payments.
“That’s important because we’re not introducing any asymmetry into this portfolio,” he emphasizes.
A Forward-Looking Tool for Income Generation
By using dividend futures to reclaim yield that might be abandoned in other derivatives-based approaches, QDPL and QSIX seek to generate income without undermining equity growth.
These differentiated dividend multiplier strategies may prove especially valuable for clients who need substantial current income while preserving purchasing power over extended time horizons. By recapturing dividends, these ETFs provide advisors with a new tool for addressing one of portfolio construction’s persistent challenges.
Rather than requiring advisors to choose between meaningful income and growth potential, Silva suggests a third way—one that seeks to capture most of the upside while aiming to deliver the income clients need. For advisors working with income-focused clients, particularly those facing the dual challenge of longevity risk and income requirements, dividend multiplier strategies may offer a compelling alternative to the traditional either-or proposition.
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Disclosures
This content is intended for financial advisors only.
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