3 Overlooked Covered-Call ETFs

As some of you may already know, there were originally only eight members on Santa’s team of reindeer.

Yet, despite being the smallest and least-known early on, eleventh-hour addition Rudolph the Red-Nosed Reindeer was the only one who eventually shot to stardom, thanks to the song by the late great Gene Autry in 1949, followed by the classic Rankin/Bass TV special 15 years later.

Perhaps we’ll be saying the same thing one day about smaller, relatively obscure ETFs in the covered-call writing fund category.

Many investment advisors and investors don’t realize just how deep the covered-call ETF category has become. While those funds that cover the Nasdaq and S&P 500 are well known in the industry, if one likes the covered-call concept but wants to see it applied to other market segments, the news is good. There’s a proverbial snowstorm of opportunities through dozens of lesser known but diverse covered-call ETFs.

The JPMorgan Equity Premium Income ETF (JEPI), reigning $30-billion-in-assets etf.com award-winner from earlier this year, dominates market share in this fund category. Its stable companion, the $7.7 billion JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) is the second largest in that peer group, roughly even in assets with the Global X Nasdaq 100 Covered Call ETF (QYLD).  

Lesser-Known Covered-Call ETFs

No other ETF in the category has even hit $3 billion yet. Here’s an introduction to a few of these small, lesser-known ETFs that may surprise you some day. 

The iShares Investment Grade Corporate Bond BuyWrite Strategy ETF (LQDW) is more than just a long name—it represents the opportunity for investors to earn some income and add even more. In the new investing era, where bonds pay a yield, you can see rather than nearly zero, LQDW’s $180 million asset base combines a core holding in a prominent corporate bond ETF with a covered-call strategy. 

The underlying bond portfolio yields 5.4%, but this year’s heightened volatility in interest rates has lifted the current annualized distribution yield for LQDW to 18.7%. Barring a major credit event in 2024, this ETF is worth doing some research on. 

Not only can advisors and investors apply covered-call writing beyond the U.S. equity market, as with LQDW, but they can also venture into gold via Credit Suisse X-Links Gold Shares Covered Call ETN (GLDI), which holds $77 million in assets. It takes a popular gold ETF and writes one-month call options 3% out of the money. GLDI has been around for 10 years, but seemingly few have noticed. But the recent surge in gold prices may end up helping this ETF attract more attention (no shiny red nose required!) 

Those who want to venture into deep contrarian equity territory can explore the $118 million Kraneshares China Internet & Covered Call Strategy ETF (KLIP). This is a case where a strong message sent by the year-to-date performance of KLIP versus the core ETF holding is writes calls around. While the equity ETF it writes those calls on is down 24% this year,

KLIP is up more than 5%. This won’t always work out this way, but it does show how covered-call writing can cushion volatile investments during difficult periods. 

So, don’t forget to look beyond the usual suspects when researching covered-call ETFs. Like that ninth reindeer, there may be ways to help save portfolios from the markets’ winter storms.