By Paul R. La Monica
The S&P 500 may be at all-time highs, but that doesn't mean it will keep chugging along. If you market exposure with some protection -- and more income -- consider "covered call" exchange-traded funds.
The ETFs track indexes like the S&P 500 or own actively managed baskets of stocks. They also sell call options against their holdings. Call options give owners the right to buy a security at a preset strike price. If a stock or index rises above that price, the call is typically exercised and the underlying security must be sold.
The strategy is best-suited for a churning, aimless market. If the market takes off, most of these funds won't keep up. Income from the call options can also help offset losses in a declining market.
Why own them now? If you think the market isn't likely to rise much more or start falling. These ETFs also generate more income than traditional funds.
One of the largest covered-call ETFs is JPMorgan Equity Premium Income ETF, known by its ticker JEPI. The $45 billion fund invests in big dividend payers in industries like healthcare, utilities, and consumer staples. Top holdings include Johnson & Johnson, AbbVie, NextEra Energy, Walmart, and PepsiCo. Thanks to its mix of dividend-payers and income from call options, the fund has a yield of 8%.
Despite its high distribution rate, the fund is ahead just 15% over the past 12 months on a total return basis compared with 31% for the S&P 500.
The NEOS S&P 500 High Income ETF has a distribution rate of 12.2%, achieved largely through buying and selling call options against the S&P 500. Its total return over the last year was 27%. Most of its gains have come from option income.
Beyond ETFs tracking the major indexes are legions of sector funds, including some in the sizzling energy sector.
The Amplify Energy & Natural Resources Covered Call ETF has surged nearly 30% in 2026, thanks in good measure to spiking energy prices. The ETF has a nearly 5% dividend yield; income from call options juices the distribution rate to 10%. The fund says it sells monthly call options to generate 6% annualized option premiums, aiming for at least a 10% annualized distribution rate.
The ETF, based on an index that rebalances monthly, holds 57 stocks and invests globally with about 30% of its holdings in non-U. S. companies. Top holdings include Petróleo Brasileiro, LyondellBasell Industries, Dow, and Atlas Energy Solutions.
"This is an energy strategy that benefits from geopolitical tensions and higher volatility in oil prices," said Christian Magoon, CEO of Amplify ETFs, in an interview with Barron's.
One caveat with all these funds: taxes. Option income tends to be taxed at ordinary income rates, making these funds best suited for tax-deferred accounts like IRAs.
Investors shouldn't just look at high yield as a reason to buy. What matters more is the market's direction, performance of individual stocks if the fund is actively managed, and the funds' skill at managing options.
Going with a sector fund, especially energy, poses its own risks. The energy sector will fall if oil prices go back to prewar levels; covered calls only provide a modicum of protection.
And if the S&P 500 keeps chugging along -- en route to Wall Street's average target of 7,460, up more than 6% from recent levels? Most of these funds will be bringing up the rear.
Write to Paul R. La Monica at paul.lamonica@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 15, 2026 15:33 ET (19:33 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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