If you’re hungry for more yield in the new year, the Canadian covered call ETFs might have something to offer your portfolio. Undoubtedly, the number of covered call ETFs has grown in recent years, thanks in part to increased demand for higher-yielding solutions. Of course, chasing high-yield individual stocks is one way to go, but there are ways to tap into the options market to add a stack of premium income on top. While it’s not a magic solution by any stretch of the imagination, it is a tool that passive income investors can utilize.
As always, there are pros and cons to going down the route of a covered call ETF. Such ETFs, which tend to implement covered calls, tend to be more labour-intensive, and that means higher management expense ratios (MERs) that could eat away at returns.
For some, the higher fees are well worth the price of admission, especially for those who care primarily about the monthly income payments and less about how much shares of an ETF are up or down in any given quarter or year. While covered call ETFs might not be the most efficient way to invest for a shot at outsized total returns, they are a great fit for some classes of income investors.
In this piece, we’ll check in on two standout monthly income ETFs that might be worth checking out this January:
BMO Covered Call Utilities ETF
The BMO Covered Call Utilities ETF (TSX:ZWU) offers an impressive 7.4% yield at the time of this writing. Of course, the yield was a bit higher just a few weeks ago when the utilities were in a bit of a trough. In any case, I continue to find the defensive sector a great place to invest as market volatility looks to become a bit worse in this new year.
Undoubtedly, the ZWU adds another layer of income and less volatility, thanks to its use of covered calls. The 0.47 beta could make for an even more defensive ride as the risk of correction (and its severity) looks to rise with every march higher in the broad TSX Index.
Either way, the ZWU stands out as one of my favourite specialty income ETFs, not just because of the huge yield, but because of the defensiveness of the names that make up the ETF. Though covered call ETF moves can be a bit unpredictable, I do think long-term holders can feel content hanging onto the name.
BMO Covered Call Canadian Banks ETF
The BMO Covered Call Canadian Banks ETF (TSX:ZWB) has been one of the better-performing covered call ETFs in 2025, rising by nearly 28%. That’s a gain that’s close to what the TSX Index clocked in!
Undoubtedly, the stellar performance in the Big Six Canadian banks is the main reason why the covered call bank ETF is off to the races. And while the yield, currently at 5.6%, seems quite low relative to other covered call ETFs, I still find the ZWB to be a great way to score a balance of capital gains and yield in the new year.
Of course, the big bank stocks yielded around 5–6% just over a year ago before their bull run. And while yields on individual banks are closer to 3–4% these days, I do find the ZWB to be a great way to score that same yield. Though do note that the ETF won’t be as hot as the individual bank stocks themselves, given the gain-eroding effects that covered calls have.
