Global X Russell 2000 Covered Call ETF

RYLD

Market cap $1.31B

Double-digit yields make most serious investors, and they should be wary as there is a history of high-yield funds that are littered with products that paid eye-catching distributions for a few quarters before quietly eroding into irrelevance.

Monthly income above 12% sounds like a promise that usually comes with a catch. These three ETFs actually pay it, though each one earns that yield through a different mechanism, and each carries a different set of trade-offs worth understanding.

RYLD is a passive ETF that adopts a covered call strategy on the small-cap segment, which today generates over 11% in distributions. The covered call strategy makes RYLD, in my opinion, an excellent hedge during bearish phases in the small-cap market. However, it does not seem to have been able to best represent bullish phases.

We're not even two weeks into 2026, and vanilla investors have already lost the plot. Their blindness has tossed 3 cheap—and growing—dividends into our laps.

Covered-call strategies can be an income investors' best friend. Whether the broader stock market goes up, down or merely grinds sideways, selling covered calls pays.

Global X Russell 2000 Covered Call ETF is downgraded to 'Hold' due to underperformance vs. peers and declining payouts. RYLD offers a high 12% yield and monthly distributions, but its ATM covered call strategy caps upside and limits recovery from market downturns. Compared to RDTE and RDTY, RYLD has lower capital erosion and expense ratio, but total returns lag and dividend payouts have trended downward.

RYLD offers high monthly income by writing covered calls on the Russell 2000, yielding 12.7% with a low 0.60% fee. The strategy caps upside potential but smooths volatility, making it relatively attractive during flat or declining markets. Distribution amounts can be volatile and are mostly return of capital, which reduces the cost basis and can potentially increase the tax implications for investors.

The Global X Russell 2000 Covered Call ETF offers exposure to small-cap US stocks via full replication of the Russell 2000 for capital appreciation potential. The ETF generates a conservative ~12% yield today primarily from selling at-the-money call options, providing steady income but capping upside in sharp rallies. Covered call strategies like RYLD perform best in flat or slowly rising markets, offering a limited downside cushion through option premiums.

Since my last writings, the implied volatilities (IV) for both the NASDAQ and Russell indices have risen to quite extreme levels. This offers favorable pricing for both RYLD and QYLD's use of options. The current IV is even more extreme for QYLD's underlying index, judging by historical records.

This article upgrades my rating on RYLD to buy primarily for two considerations. First, its 12%+ dividend yield is near peak levels since its inception, indicating unusually favorable risk premium. The current yield is nearly 2x of its historical average of 6.3%.