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The universe of high-yield, covered call option strategy ETFs continues to grow. Our ETF Income Edge service provides research and recommendations concerning this type of ETF.I review the investment strategies and historical returns for dozens of these funds for the newsletter. Since many of them are so new, I revisit them every few months to see how each has performed, especially compared to its peers.Each fund sponsor selects an underlying asset, such as the S&P 500, Nasdaq 100, or even Bitcoin. The fund prospectus describes the option strategy the fund uses.The The most common type of covered call ETF will own one of the major indices, typically by using a tracking index like the Invesco QQQ Trust ETF (QQQ), which owns stocks to match the Nasdaq 100 stock index. Options strategies can range from simply selling monthly call options to more advanced strategies involving shorter-term options or option combination strategies.The REX FANG & Innovation Equity Premium Income ETF (FEPI) takes a unique approach that has worked well for its short history. FEPI holds an equal-weighted portfolio of 15 large-cap tech stocks. Here are the current holdings:
Those stocks, as a portfolio, should give returns similar to QQQ. Where FEPI changes things up is that they sell monthly call options against each of the 15 stocks. Option values on individual stocks are almost always richer than index or index ETF options. As a result, while the typical QQQ covered call ETF will yield 10% to 12%, FEPI has consistently yielded 25%.FEPI recently celebrated its first birthday, and the fund’s total return for the year was almost exactly even with the 25% dividend yield. When investing in high-yield ETFs, that’s a win. I continue to build out the ETF Income Edge recommended portfolio. I think the recommended list is getting stronger every month.More By This Author:Will 3% Returns Be Enough? Prepare Your Portfolio Now Turn Market Shifts Into Opportunity With A Strategic Bond Ladder Which Tesla ETF Delivers Unstoppable Returns?
