Performance of Yield Enhancement Products

Should investors buy yield enhancement products (YEP), which typically offer higher-than-market yields from a package comprised of an underlying stock or equity index and a series of short put options? In the August 2020 version of her paper entitled “Engineering Lemons”, Petra Vokata examines gross and net performances of YEPs, which embed fees as a front-end discount (load) allocated partly to issuers and partly to distributing brokers as a commission. Using descriptions of underlying assets and cash flows before and at maturity for 28,383 YEPs linked to U.S. equity indexes or stocks and issued between January 2006 and September 2015, and contemporaneous Cboe S&P 500 PutWrite Index (PUT) returns as a benchmark, she finds that:

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