Three Covered Call ETFs Offering High Yields While Growing Principal
Covered call ETFs have long been scrutinized for their tendency to deliver high monthly income at the expense of principal erosion. However, a select group of actively managed funds has managed to strike a balance, offering both attractive yields and capital appreciation. Notably, the JPMorgan Equity Premium Income ETF (JEPI), Amplify CWP Enhanced Dividend Income ETF (DIVO), and Goldman Sachs S&P 500 Core Premium Income ETF (GPIX) have emerged as leaders in this space, each boasting over $1 billion in assets and yielding close to 8% on a trailing basis.
GPIX, which launched in October 2023, has quickly distinguished itself by replicating the S&P 500 while writing short-dated call options on a portion of its portfolio. This strategy allows the fund to participate in market rallies while still generating income. Since its inception, GPIX has delivered an impressive 80% return on a price basis, outperforming the SPY index in both the year-to-date and one-year periods. With a current yield in the low 8% range, it has attracted attention from income-focused investors.
JEPI stands out as the largest covered call ETF, managing $44.7 billion in assets. Its strategy combines a carefully selected basket of low-volatility large-cap stocks with equity-linked notes (ELNs) that mimic the economics of writing out-of-the-money calls. This structure allows the fund to capture premium income while enabling stock pickers to let winning positions run. Over the past year, JEPI has provided a distribution yield of approximately 8%, with a price increase of 4% year-to-date.
Selective Strategies for Enhanced Growth
DIVO takes a more selective approach, focusing on high-conviction blue-chip dividend growers and writing covered calls only on select positions. This tactical overlay results in a lower distribution yield of around 6%, but it offers stronger equity participation. DIVO has returned 10% year-to-date and 72% over five years, appealing to investors who prioritize growth alongside income.
Intelligence Reviewed
The choice among these funds ultimately depends on individual investment goals. JEPI is ideal for income-first retirees seeking stability, while GPIX caters to those wanting exposure to the S&P 500 without sacrificing yield. DIVO appeals to long-term investors focused on dividend growth and capital appreciation.
As the landscape of covered call ETFs evolves, these three funds exemplify how innovative strategies can provide both income and growth, challenging the traditional perceptions of this investment category. Investors should carefully consider their objectives and risk tolerance when selecting the right fund for their portfolios.
