Global X S&P 500 Covered Call ETF

XYLD

Market cap $3.15B

JEPI (JPMorgan Equity Premium Income ETF) is upgraded to buy, favored over XYLD for its lower fees, superior diversification, and value orientation. Current market conditions, with a low VIX and questionable CPI optimism, make covered option funds like JEPI and XYLD timely portfolio choices. JEPI's active strategy generated lower drawdowns and better total returns in the past.

Vanguard High Dividend Yield ETF (VYM) is a better core of a passive income-focused portfolio than Global X S&P 500 Covered Call ETF (XYLD). We look at why this is. We also look at how to optimize a portfolio with VYM as a core position in it.

Global X S&P 500 Covered Call ETF offers a high ~12% yield but underperforms peers and index ETFs in total returns. XYLD's at-the-money covered call strategy limits upside growth, making it suitable mainly for investors prioritizing monthly income over capital appreciation. Compared to peers like GPIX and SPYI, XYLD lags in total return, despite its higher yield, challenging its long-term appeal.

Global X S&P 500 Covered Call ETF (XYLD) offers a high 12.79% yield but is rated Hold due to value-destructive distributions. XYLD's covered call strategy caps upside while exposing investors to full S&P 500 downside, resulting in inferior total returns and risk-adjusted performance. Despite lower volatility metrics, XYLD's maximum drawdown closely matches the S&P 500, providing only the illusion of safety for income-focused investors.

Covered call ETFs like JEPI, JEPQ, ULTY, and XYLD have done well in the past few years, attracting billions of dollars in assets as investors embraced their high dividends.  JEPI, the biggest covered call ETF, has attracted over $41 billion in assets, thanks to its 8.

Fed's rate cut and hints of more such moves in 2025 spotlight ETFs like SPVU, RTH, SPSM, XYLD, CHAT and HYDR for growth and income plays.

With markets rallying lately due to strong hopes of a Fed rate cut this week, the actual reaction can be muted when the news hits the market. ETFs like QYLD, DIVO, JEPI and XYLD may help balance income and risks.

Global X S&P 500 Covered Call ETF offers a 13% yield, appealing to income-focused investors despite price underperformance since inception. XYLD excels in down markets, provides lower beta and modest alpha, and serves as a risk-reducing, income-enhancing portfolio addition. XYLD is rated a Buy for income, conservative, balanced, and value investors, but less suitable for aggressive or growth-focused strategies.

We aren't even through September, and the S&P 500 (^GSPC 0.47%) has already produced an 11.2% year-to-date total return (dividends included) at the time of this writing. That puts the index on track for its third consecutive year of higher-than-historical gains.

IVVW offers the lowest expense ratio among S&P 500 covered call ETFs and a high TTM yield, but suffers from NAV erosion and variable distributions. The fund's fixed, systematic covered call strategy leads to unpredictable income and lower long-term total returns compared to actively managed peers. IVVW is less tax-efficient, with most distributions taxed as ordinary income, making it less attractive for taxable accounts.