Investors today are increasingly mindful that the investment choices they make directly shape their tax outcomes, and are turning to ETFs as a tool to help manage those implications more efficiently. What’s interesting is that this heightened tax awareness is emerging at both ends of the spectrum: some investors are seeking to maximize tax-advantaged income, while others aim to avoid distributions altogether. Although these goals seem at odds, both can be used strategically within a portfolio to help investors achieve their objectives while optimizing tax outcomes via the ETF structure.
Three of our ETFs sit precisely at this juncture:
Investors often ask us how these funds fit into a portfolio and how they promote tax efficiency. In this blog, we break down the key considerations and explore how each may be appropriate for different investor goals.
XPAY is not your typical income generation strategy. Unlike funds that rely on selling options to generate distributions, XPAY’s income is paid directly from the fund’s NAV, primarily through return of capital (ROC) distributions*, targeting a ~20% annualized rate and paid on a monthly basis.
That level of distribution is meaningfully higher than the S&P 500’s historical long-term return, which creates a clear tradeoff. While XPAY is designed to deliver high, consistent income, sustaining that level of payout over time can increase the likelihood of reductions in NAV or equity exposure as distributions are paid.
As a result, XPAY may be most compelling for investors who prioritize high tax-efficient monthly income, and who understand that this structure can lead to a gradual decline in invested capital over time.
*To date as of March 2026, all XPAY distributions have been classified as return of capital.
TPAY’s structure and objective mirror XPAY, but it targets a 10% annualized distribution instead of 20%. While they share similarities, this difference is significant. TPAY’s distribution aligns more closely with historical S&P 500 returns. As a result, TPAY has a greater likelihood of maintaining a more stable NAV over time. In theory, this means investors’ equity exposure could remain more consistent as the fund grows than it would with XPAY. Thus, TPAY offers two benefits: tax-deferred return of capital distributions and more complete S&P 500 upside, while aiming for a more balanced, long-term NAV profile.
TPAY may be compelling for investors seeking tax-deferred distributions while still maintaining long-term market exposure. It can also appeal to those who may need periodic distributions to fund other investments or life expenses. Ultimately, it’s suited for those who want a balanced approach: receiving steady distributions without stepping entirely out of the market over time.
A majority of equity ETFs offering S&P 500 exposure are designed for capital appreciation, but still generate quarterly income through dividends. XDIV seeks to replicate the total return of the S&P 500, but with a different approach. Unlike income-focused strategies, XDIV aims to track the index funds it holds while minimizing distributions, such as dividends. XDIV has not made any distributions since inception to-date. This allows investors to stay fully invested in the S&P 500, keeping capital in the market rather than reinvesting taxable distributions. In doing so, this tax-efficient structure has the potential to enhance after-tax returns for long-term shareholders focused on growth.
In our view, XDIV is best suited for long-term investors focused on capital appreciation. It’s ideal for those who prefer to avoid dividend reinvestment and instead focus on letting their capital compound over time.
Despite the fact that XPAY, TPAY, and XDIV all offer compelling ways to promote tax efficiency within the ETF structure and are linked to the S&P 500 Index, they each employ distinct investment strategies, and these differences will determine which is the right fit for a given investor.
For investors prioritizing elevated, consistent distributions, XPAY offers a higher income profile with a more aggressive tradeoff. For those seeking income with a greater emphasis on stability, TPAY provides a more balanced approach. And for investors focused on long-term capital appreciation, XDIV offers a way to remain fully invested while minimizing taxable distributions.
Each strategy reflects a different approach to managing income, taxes, and compounding. Used appropriately, they can serve distinct roles within a portfolio depending on an investor’s objectives.
How to implement each approach:
XPAY – For investors seeking income with Return of Capital distributions: https://www.roundhillinvestments.com/etf/xpay/
TPAY – For investors seeking income with Return of Capital Distributions while pursuing NAV stability: https://www.roundhillinvestments.com/etf/tpay/
XDIV – For investors focused on minimizing taxable distributions to support compounding: https://www.roundhillinvestments.com/etf/xdiv/
For more details on the investment strategies:
XPAY & TPAY: https://blog.roundhillinvestments.com/the-next-evolution
XDIV: https://blog.roundhillinvestments.com/xdiv-an-optimized-long-term-investment-solution
Investors should consider the investment objectives, risk, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information please call 1-855-561-5728 or visit the website at https:// www.roundhillinvestments.com/etf/. Read the prospectus or summary prospectus carefully before investing.
XPAY & TPAY Risks
Distribution Tax Risk. The Fund currently expects to make distributions on a monthly basis. These distributions are expected and designed to exceed the Fund’s income and gains for the Fund’s taxable year. Distributions in excess of the Fund’s current and accumulated earnings and profits will be treated as a return of capital. The Fund seeks to be managed such that the entirety of the Fund’s distributions will be treated as a return of capital. A return of capital distribution generally will not be taxable but currently will reduce the shareholder's cost basis and will result in a higher capital gain or lower capital loss when those Fund Shares on which the distribution was received are sold. Once a Fund shareholder’s cost basis is reduced to zero, further distributions will be treated as capital gain if the Fund shareholder holds Fund Shares as capital assets. Additionally, any capital returned through distributions will be distributed after payment of Fund fees and expenses. Because a significant portion of the Fund’s distributions will consist of return of capital, the Fund may not be an appropriate investment for investors who do not want their principal investment in the Fund to decrease over time or who do not wish to receive return of capital in a given period.
Market Risk. Market risk is the risk that a particular security, or shares of the Fund ("Fund Shares") in general, may fall in value. Securities are subject to market fluctuations caused by such factors as economic, political, regulatory or market developments, changes in interest rates and perceived trends in securities prices.
Managed Payout Risk. The Fund intends to pay monthly distributions to shareholders based upon based on the NAV of the Fund on the final business day of December each calendar year. Distributions will be paid from Fund assets regardless of the Fund’s performance or the level of dividends, income and capital gains earned by the Fund, and will reduce the amount of assets available for investment by the Fund. If distributions paid by the Fund exceed the Fund’s earnings and profits, distributions of that excess will be treated as a return of capital to the extent of your tax basis in your Fund Shares.
The targeted annual distribution rate to be paid by the Fund each year is based on the NAV of the Fund on the final business day of December of the prior year. The targeted annual distribution rate is not guaranteed and may be decreased or increased in the future. The actual annual distribution rate paid by the Fund each month or year may be higher or lower than the targeted rate.
SPY ETF Risks. The Fund will have significant exposure to the S&P 500 Index and the SPY ETF through its investments in the SPY FLEX Options. Accordingly, the Fund will subject to the risks of the SPY ETF.
FLEX Options Risk. Trading FLEX Options involves risks different from, or possibly greater than, the risks associated with investing directly in securities. The Fund may experience losses from specific FLEX Option positions and certain FLEX Option positions may expire worthless. The FLEX Options are listed on an exchange; however, no one can guarantee that a liquid secondary trading market will exist for the FLEX Options. In the event that trading in the FLEX Options is limited or absent, the value of the Fund’s FLEX Options may decrease.
Active Management Risk. The Fund is actively-managed and its performance reflects investment decisions that the Adviser and/or Sub-Adviser makes for the Fund. Such judgments about the Fund’s investments may prove to be incorrect.
Active Market Risk. Although Fund Shares are listed for trading on the Exchange, there can be no assurance that an active trading market for Fund Shares will develop or be maintained.
Derivatives Risk. The use of derivative instruments (i.e. options contracts) involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. These risks include: (i) the risk that the counterparty to a derivative transaction may not fulfill its contractual obligations; (ii) risk of mispricing or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset.
New Fund Risk. The fund is new and has a limited operating history.
Concentration Risk. The Fund may be susceptible to an increased risk of loss, including losses due to adverse events that affect the Fund’s investments more than the market as a whole, to the extent that the Fund’s investments are concentrated in investments that provide exposure to ether.
Non-Diversification Risk. As a “non-diversified” fund, the Fund may hold a smaller number of portfolio securities than many other funds. To the extent the Fund invests in a relatively small number of issuers, a decline in the market value of a particular security held by the Fund may affect its value more than if it invested in a larger number of issuers. The value of the Fund Shares may be more volatile than the values of shares of more diversified funds.
Roundhill Financial Inc. serves as the investment advisor. The Funds are distributed by Foreside Fund Services, LLC which is not affiliated with Roundhill Financial Inc., U.S. Bank, or any of their affiliates.
XDIV Risks
Investment Strategy Risk. There is no guarantee that the Fund will be able to successfully avoid paying dividends and distributions. Additionally, there can be no guarantee that the Fund will be successful in its strategy to provide shareholders with a total return that matches that of the S&P 500® Index. In order to effectuate the Fund’s strategy, the Adviser is relying upon the ability to conduct in-kind redemptions of the Fund’s S&P 500 ETF holdings. In the event that the Adviser is unable to do so due to factors such as broker-dealer balance sheet availability constraints, market volatility, regulatory changes, contrary IRS positions relating to an ETF’s use of in-kind creations or redemptions, or operational issues, the ability of the Adviser to avoid the taxable income generated by an investment in Fund Shares may be impaired and may force the Fund to make a dividend or distribution payment.
S&P 500 ETFs Risk. The Fund will have significant exposure to the S&P 500® Index through its investments in the S&P 500 ETFs. Accordingly, the Fund will subject to the risks of the S&P 500 ETFs, set forth below. In addition to these risks, each S&P 500 ETF is also subject to the following risks to which the Fund is also subject, which are described within the section entitled “Principal Risks”: Active Market Risk, Asset Class Risk, Concentration Risk, Cybersecurity Risk, Operational Risk and Structural ETF Risk.
Active Management Risk. The Fund is actively-managed and its performance reflects investment decisions that the Adviser and/or Sub-Adviser makes for the Fund. Such judgments about the Fund’s investments may prove to be incorrect.
Active Market Risk. Although Fund Shares are listed for trading on the Exchange, there can be no assurance that an active trading market for Fund Shares will develop or be maintained.
New Fund Risk. The Fund is a recently organized investment company with a limited operating history. As a result, prospective investors have a limited track record or history on which to base their investment decision.
Distribution Tax Risk. These distributions may exceed the Fund’s income and gains for the Fund’s taxable year. Distributions in excess of the Fund’s current and accumulated earnings and profits will be treated as a return of capital. A return of capital distribution generally will not be taxable but will reduce the shareholder’s cost basis and will result in a higher capital gain or lower capital loss when those Fund Shares on which the distribution was received are sold. Once a Fund shareholder’s cost basis is reduced to zero, further distributions will be treated as capital gain if the Fund shareholder holds Fund Shares as capital assets. Additionally, any capital returned through distributions will be distributed after payment of Fund fees and expenses. Because a portion of the Fund’s distributions may consist of return of capital, the Fund may not be an appropriate investment for investors who do not want their principal investment in the Fund to decrease over time or who do not wish to receive return of capital in a given period. In the event that a shareholder purchases Fund Shares shortly before a distribution by the Fund, the entire distribution may be taxable to the shareholder even though a portion of the distribution effectively represents a return of the purchase price.
Roundhill Financial Inc. serves as the investment advisor. The Funds are distributed by Foreside Fund Services, LLC which is not affiliated with Roundhill Financial Inc., U.S. Bank, or any of their affiliates.
Glossary
S&P 500 Index (S&P 500®): The S&P 500 Index is a measure of large-cap U.S. stock market performance. It is a float-adjusted, market capitalization-weighted index of 500 U.S. operating companies and real estate investment trusts selected through a process that factors in criteria such as liquidity, price, market capitalization, financial viability and public float. It is rebalanced quarterly in March, June, September and December.