Global X Passive Covered Call ETF Aims for Income

With interest rate hikes likely to come to an end, investors may need to look beyond Treasuries.

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Reviewed by: Lisa Barr
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Edited by: Sean Allocca

Global X ETFs, an issuer with $43 billion in assets across 108 exchange-traded funds, launched another entry in its covered call series on Wednesday, offering potential yield to investors as the Federal Reserve approaches the end of its rate hike cycle.  
 
The Global X Dow 30 Covered Call & Growth ETF (DYLG) is the latest in the New York-based company’s series of covered call ETFs. Covered call writing is a strategy in which an investor sells call options on a security they own in exchange for a premium. The premium received from selling the call option provides additional income for the investor. 

With interest rate hikes likely steadying, investors may look beyond Treasuries for potential yield. DYLG is passively managed and tracks the Dow Jones Industrial Average, or Dow 30, a 30-stock index weighted by the price of the stocks, not market capitalization like other major indexes. While selling call options eliminates upside from stock gains, depending on how many options are sold, the strategy can generate significant income. 

Covered Call ETFs 

For comparison, the Global X Nasdaq 100 Covered Call & Growth ETF (QYLG) has a 12-month trailing yield of about 6%. The covered call ETFs write call options on half of their stock holdings, preserving half of the upside potential, while still generating income. 

“Investors will have to get nuanced about income investing,” Rohan Reddy, director of research at Global X ETFs, said in an interview. “Investors aren’t likely to continue getting 5.0-5.5% risk-free returns from ultra-short-term Treasuries going forward.” 

The Federal Reserve likely has few to no rate hikes left before it holds steady, and the economy seems increasingly likely to avoid a recession. This means covered call ETFs offer relatively high yields, albeit with significantly greater volatility of the stock market. 

The passive fund has an expense ratio of 0.60%, similar to Global X’s other covered call ETFs, which is significantly more expensive than its active competition. Actively managed covered call ETFs JPMorgan Equity Premium Income ETF (JEPI) and JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) have expense ratios of 0.35%, a fact that has made them wildly popular, attracting more than $13 billion in inflows between them this year.  

 
 
Contact Gabe Alpert at [email protected]          

Gabe Alpert is a former data reporter at etf.com with over seven years’ experience in financial journalism. He also previously contributed reporting and analysis to Barron’s Magazine, Investopedia and other publications.