What are your 2 favorite covered call etfs and why? Do you generally recommend them for the average investor?
Our favourite covered call ETFs involve underlying assets that have a history of appreciating over time. For that reason, we like the S&P 500 Covered Call ETF (XYLD), which offers a distribution yield of 9.3% and an AUM of $2.9B. Over the past 10 years, the fund has annualized 7.2% per year (includes a reinvested yield).
The other covered call ETF that we like is the BMO Covered Call Canadian Banks ETF (ZWB). It has a 7.5% distribution yield, a higher AUM of $2.9B, and over the past 10 years it has returned 8.1% annually with distributions reinvested.
For investors seeking monthly income, covered calls can be a good approach, however, for the average investor we do not typically like the cap on price appreciation that covered call ETFs have, and for an uptrending market, we would prefer to own the underlying assets outright rather than covered calls.
Authors of this answer, directors, partners and/or officers of 5i Research and/or affiliated companies have a financial or other interest in ZWB.